The United Kingdom Department for Business, Energy and Industrial Strategy has announced that certain temporary measures put in place under the Corporate Insolvency and Governance Act 2020 (CIGA), which became law on 26 June 2020, will be extended.
Statutory Demands and Winding-Up Petitions
As we attempt to mitigate the potential effects of the COVID-19 pandemic on our global supply chain, stakeholders should be actively considering downstream impacts. In this current environment, considering prospective internal and external bankruptcy and restructuring threats may be more important than ever.
Introduction
Introduction
Executive Summary
- New legislation will introduce permanent and temporary reforms to the UK restructuring and insolvency regime
- Permanent reforms: company moratoriums; restructuring plans; the prohibition of insolvency termination clauses in supply contracts
- Temporary reforms: suspension of the director wrongful trading offence; restriction on the service of statutory demands and winding up petitions
Overview
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established the Paycheck Protection Program (PPP), a lending program for small businesses pursuant to which up to 100 percent of the principal loan amount is forgivable. While the PPP program has been a boon to business struggling in light of the ongoing pandemic, the SBA has sought to limit access by bankrupt borrowers, eliminating a significant number of otherwise eligible businesses and creating significant legal questions and issues.
The economic fallout of COVID-19 is widespread and immense, and few businesses remain unscathed by fundamental changes to consumer spending. No industry may be more affected than traditional department stores and brick and mortar retailers. Pressures on these businesses are nothing new, and companies across the retail spectrum have worked in recent years, with varying degrees of success, to adapt to the rise of e-commerce and changing consumer preferences.
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 impact of Covid-19 on businesses has already been significant, with several high-profile businesses in the UK and the Channel Islands ceasing to trade or entering administration. The sudden drop in custom as a result of restrictions imposed to protect the community from Covid-19 (the Restrictions) have resulted in businesses experiencing severe, if not crippling, cash flow issues.
In Autumn 2018 the States of Guernsey proposed changes to Guernsey’s corporate insolvency regime to come into effect in 2019. On 15 January 2020 the States of Guernsey enacted these changes with the passing of the Companies (Guernsey) Law 2008 (Insolvency) (Amendment) Ordinance 2020 (the Ordinance).
The Ordinance brings into effect the proposed changes to create a structured, flexible and transparent regime for company insolvency procedures in Guernsey, as is required in a modern jurisdiction. A summary of the main changes is set out below.
Administration