The COVID-19 global crisis has brought cross border insolvencies into focus as companies consider the challenges that may arise where assets are situated across a number of jurisdictions and where an insolvency event may occur. Drawing on our experience of cross border restructurings, and the issues that should be considered, we look at the key issues to consider when assessing if you should implement a restructuring where an Irish company is involved and which restructuring tool to avail of.
Background
Under the Scheme, furloughed employees, whose services cannot be used due to the current COVID-19 pandemic, will not be permitted to work for their employer during the period of furlough but the employer will be able to apply for a grant from the government to cover the cost of continuing to pay the employees 80% of their salary up to a cap of £2,500 per month.
Directors are facing difficult decisions in the current climate but, while the impact of COVID-19 will continue to be felt, it does not follow that companies should be forced out of business. Our publication 'Saving viable businesses – a look at restructuring options in the current environment' serves as reminder of rescue procedures available under Irish law.
Businesses in all sectors are facing very challenging times arising from the outset of, and reaction to, the Coronavirus (COVID-19). With the challenges in some instances being unprecedented, directors of affected companies need to be cognisant of their duties especially around decisions they are looking at making to get through current difficulties
Companies are now faced with unprecedented challenges presented by the coronavirus pandemic. In this context, company directors will be trying to do everything they can to protect and preserve the business. However, they do still need to remember their legal duties, so as not to expose themselves to the risk of personal liability if their actions go beyond what the law allows.
Practical steps which directors should be taking now, as explained in more detail below include:
Many readers will be aware of the recent, sudden closure during service of Mayfair restaurant “The Square”, which left staff out of work and out of pocket after January’s wages remained unpaid.
Sadly this is by no means an isolated example, as every year thousands of bars and restaurants ‘go under’, but there are steps you can take to protect your position as an employee.
Keep Informed
Not all employers keep their staff updated on the financial health of the company, particularly when its struggling.
Overview
The recent approval by the Irish High Court of a scheme of arrangement that restructured US$1.65bn of liabilities of Ballantyne Re plc (Ballantyne) confirms Dublin as one of the most effective restructuring venues in the EU. The detailed decision of Justice Barniville (available here) offers significant precedential value and is a clear endorsement that Irish schemes can be used to implement complex cross border restructurings. The Irish statute governing schemes is very similar to that of England and Wales.
Essence of the Ballantyne scheme:
Cash flow is the life blood of the construction industry, goes the mantra. Construction projects often have long supply chains. When cash stops flowing down the chain, businesses can fail. There is all too much recent evidence of this.
Someone in the chain (say, a main contractor) could seek to provide in a contract that it does not have to pay the party below (subcontractor) until it has been paid by the party above (employer). This is a 'pay-when-paid' clause.
In its recent decision in LBI EHF v Raiffeisen Bank International AG [2018] EWCA Civ 719, the Court of Appeal confirmed the wide discretion enjoyed by a non-defaulting party under the default valuation provisions in the Global Master Repurchase Agreement (2000 edition) (“GMRA”) when it comes to determining the “fair market value” of securities.
In particular, when assessing “fair market value”, the non-defaulting party is entitled to have regard to any distressed or illiquid market conditions that were being experienced at the relevant time.
If a transaction by a company amounts to an "unlawful distribution", and the company subsequently goes into liquidation, will an action for recovery of the benefits of that distribution, brought against the directors who authorised the transaction, be statute-barred if it is commenced by the liquidator of the company more than 6 years after the distribution was made?