Oliver Hyams and Amy Held investigate the recent case of Islandsbanki Hf & Ors v Stanford [2020] EWCA Civ 480.
Background
In brief
The following measures introduced as a COVID-19 response are now to be extended:
Adjudication is a quick and comparatively cheap method of dispute resolution and for those reasons is attractive to insolvent companies seeking to recover debts. However, a respondent was likely to be able to restrain the insolvent company from referring the matter to adjudication on the basis that it would be futile to do so, since any positive decision was unlikely to be enforced as a result of the very fact of the company’s insolvency. Therefore, any award lacked practical utility. Following the decision of the Supreme Court in Bresco v Lonsdale, that is no longer the case.
Following the posting of the article I co-wrote with Morayo Fagborun-Bennett on the Recovery of Commercial and Residential Rent Arrears, there have been a couple of developments of note.
Even with the fiscal stimulus and other measures taken by the Federal and State governments in Australia, corporate insolvencies are likely to increase in coming months.
Under Australia’s insolvency regimes, a distressed company may be subject to voluntary administration, creditor’s voluntary winding up or court ordered winding up (collectively, an external administration). Each of these processes raises different issues for the commencement and continuation of court and arbitration proceedings.
This article follows the #HardwickeBrew on 28th May 2020 which looked at the Corporate Insolvency & Governance Bill. If you would like to take part in future #HardwickeBrews, please sign up via our Events page.
Introduction
- This note reviews the provisions relating to the moratorium procedure for Great Britain under the draft Corporate Insolvency and Governance Bill (“CIGB”).
CIGB
Distressed M&A
Any downturn tends to produce a surge of distressed m&A opportunities, and the current crisis will be no different. Investments in distressed companies follow a different set of rules to "normal" m&A transactions, bringing additional complexity in terms of the stakeholders involved and deal structuring, as well as particular set of challenges for due diligence and buyer protections.
In brief
Can you take security over all types of assets, including working capital? Generally yes, before filing for the reorganization or the ruling setting forth the start of the liquidation bankruptcy. After the beginning of the reorganization proceedings, no further security interests can be granted over the assets of the debtor for credits due before the beginning of the reorganization proceedings. The debtor can grant security interests for new creditors after the start of the reorganization proceedings.
Directors of Australian companies face significant personal monetary -- and potential criminal and adverse professional -- consequences if they allow the company to trade whilst insolvent.
Australian insolvent trading laws are harsher, and more frequently utilised to prosecute directors personally, than in many other jurisdictions including in the US and the UK.
Accordingly, frequent assessment of a company's solvency by its directors is crucial, particularly in financially difficult times, as are active steps to address any potential insolvency.