Re Patrick Cowley and Lui Yee Man, Joint and Several Liquidators of the Company [2020] HKCFI 922(date of judgment: 27 May 2020)

GOVERNANCE & SECURITIES LAW FOCUS

JULY 2020/EUROPE EDITION

Below is a summary of the main developments in U.S., EU, U.K. and Italian corporate governance and securities law since our last update in April 2020.

See our page dedicated to the latest financial regulatory developments.

IN THIS ISSUE

UK CORPORATE INSOLVENCY AND GOVERNANCE ACT 2020

9 JULY 2020

IN THIS ISSUE:

Permanent Insolvency Changes A New Standalone Moratorium A New Restructuring Plan Ipso Facto Termination Clauses

Temporary Insolvency Changes Modification of Wrongful Trading Liability Statutory Demands Winding Up Petitions Winding Up Orders

Further Changes

Governance Changes Company Meetings Company Filings

Final Thoughts

The Corporate Insolvency and Governance Act received royal assent on 25 June 2020 and comes into force immediately.

The Act introduces a range of new corporate restructuring tools and suspends, temporarily, parts of the existing insolvency regime. The purpose of this note is to update you on two key aspects of the Act: the moratorium on legal action and the temporary changes in relation to statutory demands and winding-up petitions.

Moratorium on legal action

On June 2, 2020, Judge Donald R. Cassling of the United States Bankruptcy Court for the Northern District of Illinois held that a state executive order suspending dine-in services to address the COVID-19 pandemic (the “Executive Order”) constituted a force majeure event that partially excused performance under the applicable lease agreement. In re Hitz Restaurant Group, No. 20-B-05012, 2020 WL 2924523 (Bankr. N.D. Ill. June 2, 2020).

NORTHERN DISTRICT OF ILLINOIS BANKRUPTCY COURT HOLDS THAT EXECUTIVE ORDER BARRING RESTAURANT OPERATIONS ON-PREMISES IN LIGHT OF COVID-19 IS A FORCE MAJEURE EVENT THAT PARTIALLY EXCUSES DEBTOR RESTAURANT’S PAYMENT UNDER THE LEASE

Clearly there are some major economic challenges ahead. Many businesses may be able to withstand the challenges ahead but it may very well be that their trading counterparties (whether suppliers, customers or other stakeholders) will not. Whilst these times can represent an opportunity for some, such as potential acquirers (whether of businesses, assets or distressed debt), in most cases, the climate represents a threat to businesses.

The Corporate Insolvency and Governance Bill (the "Bill") was published on 20 May 2020. The Bill introduces a new type of ‘moratorium’ whereby eligible companies can take 40 days to restructure without the threat of enforcement action from creditors.

The Corporate Insolvency and Governance Bill 2019-21 (the “Bill”) published on 20 May 2020, had its third reading on 3 June 2020. This briefing focuses on the proposed changes to shareholder meetings and Companies House filing deadlines. For the purposes of this briefing, the “Relevant Period” began on 26 March 2020 and ends on 30 September 2020.

1. Flexibility for holding shareholder’s meetings.

Market conditions and Covid-19

The Covid-19 pandemic and the response to it, including global lockdowns, has caused substantial disruption to business operations and trade which has resulted in significant cash flow and financial challenges for many businesses. As a result, in a number of cases, financing covenants have been breached which have triggered defaults under financing arrangements.