Both the COVID-19 pandemic and the measures taken by governments have led to unprecedented legal questions that require immediate attention and solutions. These are challenging times. We have therefore prepared the following overview of some of the pertinent legal questions and the answers to consider, in the hope they provide useful preliminary guidance.

If ever there were times challenging enough for boards to be considering the financial lifeline that is safe harbour from insolvent trading, these are they.

On a daily basis we are reading news of businesses having to shut down and lay off employees and seeing footage of lengthy Centrelink queues. Boards are working harder than ever to govern their organisations in incredibly uncertain times.

As part of the its efforts to stem the effects of the COVID-19 pandemic on the Australian economy, the Federal Government has recently introduced a number of ‘safety net’ provisions designed to avoid financially distressed individuals and companies being forced into, respectively, bankruptcy and liquidation.

The objective is to allow them to continue trading where possible.

The reforms

On 23 March 2020, the German Federal Cabinet adopted further urgent measures to mitigate the economic consequences of the COVID-19 pandemic. The package of measures includes an emergency aid programme for micro-enterprises, self-employed persons and freelancers of up to EUR 50 billion and an economic stabilisation fund of EUR 600 billion as well as a Law to mitigate the consequences of the COVID-19 pandemic in civil law, insolvency law and criminal proceedings.

In a unanimous decision written by Justice Neil Gorsuch (Rodriquez v. FDIC No 18-12690), the Supreme Court vacated a decision by the U.S. Court of Appeals for the Tenth Circuit (In reUnited Western Bancorp, Inc., 914 F. 3d 1262 (10th Cir, 2019)) that awarded a federal income tax refund of a failed bank to the Federal Deposit Insurance Corporation as receiver.

A decision this month out of the Bankruptcy Court in Manhattan (SDNY) could have a significant impact on the market for student loan securitizations. Student loan asset-backed securities (SLABS) are unsecured, but market participants typically assume that the underlying student loans are not dischargeable in bankruptcy. A new ruling by the chief judge of the SDNY’s Bankruptcy Court challenges this assumption.

EMPLOYMENT (news)

Diversity in boards of larger companies

Targets (i.e., at least 30% women) imposed by Dutch law for a more balanced composition of the executive and supervisory boards of ‘large’ companies shall cease to exist as of 2020. A ‘large’ company is a company that meets two of the following requirements: (i) EUR 20 mio balance sheet total; (ii) net turnover of EUR 40 mio; and (iii) 250 employees. This does not, however, mean that diversity is no longer on the agenda of the Dutch Government.

Claims trading has become increasingly commonplace in today’s bankruptcy cases, typically with little need for policing by the courts.

In December 2017, Congress passed and President Trump signed the Tax Cuts and Job Act of 2017 (TCJA). Effective as of Jan. 1, 2018, the TCJA is a wide-ranging change to the Internal Revenue Code of 1986 (the Tax Code) affecting individual, corporate, and international taxation.

Lost amongst the many commentaries are two changes that have a negative impact on business debtors under the Bankruptcy Code: (1) reduction of the corporate tax rates and (2) elimination of the ability to carry back net operating losses.

A recent Federal Court decision puts administrators on notice that they must carefully consider the consequences of dealing with other people’s assets.

The decision of Justice Perram in White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) [2018] FCA 471, highlights the care that administrators must take when administering property outside the scope of their authority.

In Mossgreen, administrators were appointed to a company that conducted a business that ran an auction house and gallery.