In these difficult economic times, companies seeking additional liquidity may turn to alternative sources of financing. Companies with assets that can be monetized (e.g., accounts receivable, intellectual property, real estate, equipment, etc.) may discover a number of options available to them. In particular, accounts receivable financing may be an attractive way for certain companies to obtain working capital relatively quickly.
On 28 March 2020, the Business Secretary, Alok Sharma, announced new insolvency measures to support companies under pressure as a result of the COVID-19 outbreak. In summary, the government is due to: (i) implement the landmark changes to the corporate insolvency regime that were announced in August 2018 (as discussed in Weil’s European Restructuring Watch update on 7 September 2018); and (ii) temporarily and retrospectively suspend wrongful trading provisions for three months.
Proposed Changes to the Corporate Insolvency Regime
Global outlook
Impact on businesses
Managing insolvency risks
Considerations for companies and directors
Consequences for lenders
Increasing cash flow pressure on many businesses has resulted in a heightened risk for directors that a company may be wrongfully trading and personal liability may then accrue to the directors.
Increasing cash flow pressure on many businesses has resulted in a heightened risk for directors that a company may be wrongfully trading and personal liability may then accrue to the directors.
Many businesses are—or soon will be—unable to meet their obligations. Not all businesses in distress are unsuccessful; sometimes, as in the economic circumstances arising from the novel coronavirus (COVID-19) and the governmental directives tailored to address the related public health issues, even successful businesses must confront closures and steep declines in demand that could not have been anticipated, and may find it necessary or desirable to restructure their existing debt obligations.
Background
On 6 March 2020, the restructuring of Doncasters Group's 1.22 billion funded debt was completed. Following a successful non-core disposals program, the Doncasters Group (a leading worldwide supplier of high quality engineered components for the aerospace, industrial gas turbine and specialist automotive industries) operates from 12 principal manufacturing facilities based across the United Kingdom, the United States, Germany, Mexico and China.
This briefing looks at the potential impact of the coronavirus COVID-19 on businesses and examines steps that can be taken by stakeholders and directors to recognise, manage and mitigate the risks. In particular, we look at: the potential impact on businesses; managing insolvency risk; considerations for directors; and considerations for lenders.
Global outlook for the coronavirus situation
The recent English judgment of System Building Services Group Limited¹ is an important decision for directors of offshore companies in 'soft touch' provisional liquidation, and highlights the importance of conducting a thorough analysis of the order appointing provisional liquidators for the purposes of ascertaining the scope of directors’ duties that apply during the course of their post-appointment restructuring efforts.
In a recent decision, In re Philadelphia Entertainment and Development Partners, L.P., No. 14-000255-mdc (Bankr. E.D. Pa. Dec. 31, 2019), the Bankruptcy Court for the Eastern District of Pennsylvania held that state sovereign immunity does not prevent bankruptcy courts from hearing fraudulent transfer claims against states.