The purpose of this note

The profound business and market interruption already caused by the COVID-19 outbreak has introduced insolvency risks for many otherwise healthy businesses. 

This note summarises proposed insolvency law reforms announced on 28 March 2020 with some commentary on other recent COVID-19 developments in this area, including: 

COVID-19 has had an unimaginable impact on the corporate world. The assumptions on which parties approached corporate transactions like Joint Ventures (JV) have often been blown off course. Businesses that are party to JVs must monitor not just themselves but the condition of their JV partner and the impact that they may have on the JV. There is no 'off the shelf' Joint Venture Agreement (JVA). Analysing the legal and practical rights and constraints in each JV is therefore essential.

UK creditor schemes of arrangement under the UK Companies Act 2006 have recently gained popularity as a tool to “amend and extend” or comprehensively restructure debt obligations. In previous client alerts related to the restructuring of bonds issued by DTEK (May 2015) and the standstill scheme of arrangement for Metinvest (February 2016), we outlined some of the common reasons issuers find schemes of arrangement attractive and the types of schemes used to date.

In the current period of flux, lenders should review their finance documents regarding protections and/or vulnerabilities; and where exposed to industries particularly affected by the COVID-19 outbreak may consider (i) invoking provisions to demand early repayment and/or to preclude further lending; and (ii) whether there is material benefit in doing so. They should also consider pre-emptive steps with a view to staving off critical defaults.

To Our Clients and Friends Memorandum March 30, 2020 Copyright © 2020 Fried, Frank, Harris, Shriver & Jacobson LLP A Delaware Limited Liability Partnership 1 COVID-19 Pandemic: Key UK Government and Bank of England Initiatives to Support Businesses * In light of the rapidly developing situation and government response, this memorandum is current as of March 29, 2020. The rapid transmission of COVID-19 around the world has had a transformative impact on economies, politics and societies. Europe and the United States, in particular, have now emerged as epicentres of the pandemic.

As we close the week which has seen the Government and the Bank of England publish details of their financial support package for business, the business community awaits the formal launch of both the Coronovirus Business Interruption Loan Scheme (CBILS) and the Covid Corporate Financing Facility (CCFF) next week.

CBIL scheme

The economic consequences of the Coronavirus epidemic have heavily impacted stock markets worldwide as investors quantify and manage the risks in underlying businesses often by quickly disposing of their investments. Whilst investors can liquidate their positions quickly the challenges for business managers run deeper. Decisions take longer to impact results and can be overturned by the unpredictability of the crisis. Most businesses will be impacted in some way and for many it will take management teams into new territory, the “zone of insolvency”.

This article was first published in The Commercial Litigation Journal.

We previously considered the potential implications for insolvency professionals of the rise of cryptocurrencies (available here). One of the principal issues identified was the uncertainty surrounding the legal status of cryptocurrencies; what class of asset were they and, subsequently, how would they be treated under English law?

On 4 December 2019, the Supreme Court handed down its judgment in MacDonald and another (Respondents) v Carnbroe Estates Ltd (Appellant) (Scotland) [2019] UKSC 57. The appeal concerned the interpretation of ‘adequate consideration’ under section 242 of the Insolvency Act 1986 (the “Act”) and the remedies that courts can apply if there is a gratuitous alienation, and inadequate consideration paid for the transaction in question.