Suppliers are now prevented from terminating many contracts and supplies of goods or services if the customer is subject to a ‘relevant insolvency procedure’ (such as going into administration, CVA, or appointing a provisional liquidator).
This follows the Corporate Insolvency and Governance Act 2020, which came into force on 26 June. Although Coronavirus has accelerated the passing of the Act, these are set to be permanent changes.
What can’t suppliers do?*
UPDATED 3 AUGUST 2020
Updates marked with *
Updated: Ireland, Israel
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It is not uncommon for a person's job title to include the word "director", such as "Finance Director" or "Marketing Director". While such roles will carry a high level of responsibility, the individuals in these positions are not always formally appointed to the company's Board of directors. Even though such persons are not formally appointed as directors, they may still owe all (or at least some) of the same directors' duties as an appointed director.
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What's the issue?
Many commercial contracts for the supply of goods or services contain clauses (known as ipso facto clauses) which allow a party to terminate in the event that the other enters into an insolvency process. Concerns have grown that termination under these circumstances restricts the ability of the company in trouble to engage in a successful restructuring or rescue (of either the company or the business) which can result in a negative impact on creditors.
What's the development?
Apart from being responsible for the proper administration and management of the company, Directors of a Maltese company are, amongst other obligations, generally bound to act honestly and in good faith in the best interests of the Company; to promote its well-being and to exercise the degree of care, diligence and skill that may reasonably be expected of a person in such a position.
These duties, along with the duties of directors in the case of companies experiencing over-indebtedness and/or illiquidity are chiefly regulated by the Companies Act (the Act).
Apart from being responsible for the proper administration and management of the company, Directors of a Maltese company are, amongst other obligations, generally bound to act honestly and in good faith in the best interests of the Company; to promote its well-being and to exercise the degree of care, diligence and skill that may reasonably be expected of a person in such a position.
These duties, along with the duties of directors in the case of companies experiencing over-indebtedness and/or illiquidity are chiefly regulated by the Companies Act (the Act).
This briefing first appeared in the June 2020 edition of South Square Digest.
Executive Summary
In February 2020 the British Virgin Islands Commercial Court (the "BVI Court") sanctioned a creditor scheme of arrangement, which was part of a much larger cross boarder restructuring. This scheme of arrangement, which as a creditor scheme was itself rare for the BVI, was preceded by the BVI's first ever "soft touch" provisional liquidation (in linked proceedings), which commenced in December 2018.
A recent case has highlighted the dangers of the treatment of a Director’s Loan Account (“DLA”), and the risks to directors of trying to re-categorise their DLAs as salary payments. This can mean that the information previously provided to HMRC was incorrect and puts directors at risk of penalties and possibly even a charge of tax evasion.
Conversion of Director’s Loan Accounts to Dividends