Counterparties to swap and repurchase transactions have come under pressure following the financial dislocations caused by the novel coronavirus pandemic in 2020 (“COVID-19”). Falling and illiquid markets may result in margin calls that create immediate liquidity risk and may lead to an event of default if required margin is not posted in accordance with the contract.

The restructuring and recovery profession is seeking to quickly adapt to the economic strain and disruption presented by the COVID-19 pandemic. Whilst new restructuring procedures may soon be introduced to provide distressed companies with protection, the industry has been encouraged to innovate with the tools it already has. One possible option that is developing is the concept of “light touch” administrations. The extent of the “light touch” and the suitability of the option will depend on each scenario.

Both the German federal government and various German federal states are pushing ahead with packages of measures to mitigate the as-yet-unforeseeable economic consequences of the COVID-19 pandemic.

Overview

In order to mitigate the economic consequences of the COVID-19 pandemic, the legislator passed the COVID-19 Insolvency Suspension Act (COVInsAG; the “Act”), which came into force on 27 March with retroactive effect from 1 March 2020.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, Public Law No. 116-136 (the “CARES Act” or the “Act”), the stimulus package designed to mitigate the widespread economic impacts of the coronavirus (“COVID-19”). The Act includes important temporary modifications [1] to Subchapter V of the Bankruptcy Code (the “Code”), applicable to small -business debtor reorganizations.

Temporary Increase in Debt Limit

It is clear that there are going to be incredible impacts to businesses and companies of all sizes as a result of the COVID-19 pandemic. No business will be immune to the impact of this health epidemic. Across the globe, governments have responded in various ways to change insolvency laws in an attempt to provide assistance to those businesses affected directly or indirectly by COVID-19. Australia is no different and the Federal and State Governments have responded quickly to the crisis.

COVID-19 has had impacts on contracts relating to commercial undertakings (e.g., construction projects), commercial and industrial tenancies, and individual consumer transactions (e.g. bookings for events). Individuals or companies who are unable to meet their obligations may have to pay damages or forfeit deposits. Otherwise stable businesses may be sued and face lengthy litigation or possible insolvency.

On 1 April 2020, the Ministry of Law announced that it intended to introduce the COVID-19 (Temporary Measures) Bill (“Bill”) in Parliament within one week. The Bill aims to provide temporary relief and protection for individuals and companies who are unable to fulfil their contractual obligations because of COVID-19.

On March 25, 2020, the German Bundestag passed the “Act on Mitigation of the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Proceedings” (“Act”) as part of the so-called “Corona Package.” The Act passed the German Federal States’ Assembly (“Bundesrat”) in a special session on March 27, 2020, and came into force on the same day.

On Saturday 28 March, Secretary of State for the Business, Energy and Industrial Strategy, Alok Sharma, announced a proposal for the urgent reforms to UK insolvency law, designed to protect companies and their directors during the COVID-19 outbreak.

Wrongful Trading (section 214 Insolvency Act 1986)

It was announced that there would be a temporary suspension of section 214 Insolvency Act 1986 in relation to wrongful trading.

On March 27, 2020, the President signed into law the historic Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “Act”), a $2.2 trillion stimulus package designed to mitigate the widespread economic effects of the novel coronavirus (“COVID-19”). The Act includes several temporary modifications to chapter 7 and chapter 13 of the U.S. Bankruptcy Code.^[1] This alert details these modifications as follows:

Certain Federal Payments Excluded From Definition of “Income”