The COVID-19 crisis is already showing signs of pushing the UK economy into recession, has undoubtedly impacted the M&A market in the UK and increased the likelihood of businesses entering into insolvency proceedings. However, history tells us that shocks to the market do give rise to opportunities it's a question of knowing where they are and being prepared.

A borrower who, without having the right to do so, would not pay a credit instalment due between 12 March 2020 and one month after the end of the state of health emergency (which is supposed to last two months as from 24 March 2020 but could be extended), could argue that the loan documents' acceleration clause and default interest clause (a liquidated damage clause) shall only take effect after that period pursuant to Ordinance No. 2020-306 of 25 March 2020, adopted further to the "emergency" Law No. 2020-290 of 23 March 2020.

A borrower who, without having the right to do so, would not pay a credit instalment due between 12 March 2020 and one month after the end of the state of health emergency (which is supposed to last two months as from 24 March 2020 but could be extended), could argue that the loan documents' acceleration clause and default interest clause (a liquidated damage clause) shall only take effect after that period pursuant to Ordinance No. 2020-306 of 25 March 2020, adopted further to the "emergency" Law No. 2020-290 of 23 March 2020.

The Government continues to develop its response to the COVID-19 pandemic. In this Insight we examine the weekend's announcement from the Business Secretary that provides some welcome good news for directors.

Healthcare workers are on the frontline of fighting COVID-19, but directors of companies have an equally important task, that of keeping the wheels turning and helping minimise the damage to the economy and the livelihoods of their employees, and keeping otherwise viable businesses intact for when the crisis passes.

How should directors respond to the fast-moving situation and the challenges posed by assessing and dealing with the impact on the business?

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware on Dec. 10, 2019. In re Alcor Energy, LLC, 2019 WL 6716420, 4 (D. Del. Dec. 10, 2019). The court declined to “exercise [its] discretion” under 28 U.S.C. §158(a)(3) to hear the interlocutory appeal. Id., citing 16 Wright & Miller, Federal Practice and Procedure, §3926.1 (3d ed. 2017) (“There is no provision for appeal as of right from an injunction order of a bankruptcy judge to the district court.”).

A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).

Lender repossesses the equipment of its business borrower after it defaults on its secured loan agreement. Because borrower needs the equipment to run its business, it then files a Chapter 11 petition and promptly asks lender to return the equipment. Lender refuses because the equipment secures the defaulted loan. Depending on where the debtor sought bankruptcy relief (e.g., New York or New Jersey), lender may be subject to sanctions for holding on to the equipment. 

A bankruptcy trustee may sell “avoidance powers to a self-interested party that will abandon those claims, so long as the overall value obtained for the transfer is appropriate,” held the U.S. Court of Appeals for the Ninth Circuit on Jan. 15, 2020. Silverman v. Birdsell, 2020 WL 236777, *1 (9th Cir. Jan. 15, 2020).

A secured lender’s “mere retention of property [after a pre-bankruptcy–repossession] does not violate” the automatic stay provision [§ 362(a)(3)] of the Bankruptcy Code (“Code”), held a unanimous U.S. Supreme Court on Jan. 14, 2021. City of Chicago v. Fulton, 2021 WL 125106, *4 (Jan. 14,2021). Reversing the Seventh Circuit’s affirmance of a bankruptcy court judgment holding a secured lender in contempt for violating the automatic stay, the Court resolved “a split” in the Circuits. Id., at *2. The Second, Eighth and Ninth Circuits had agreed with the Seventh Circuit.