Introduction

The COVID-19 pandemic presents directors of all business entities1 with a profound and unprecedented set of challenges. Now more than ever, key decision-takers in businesses appreciate that their actions will be carefully judged following the crisis. Scrutiny of their actions will come from a range of interested and affected parties including creditors, employees, trades unions, landlords, customers, regulators, insolvency practitioners and possibly even law enforcement.

Legal opinions can be complex, and certain areas require the provision of reasoning to support the opining firm’s conclusion. Parties should discuss and agree the scope of legal opinions as early as possible within the life cycle of a deal. This article discusses some common areas for consideration.

WHAT IS A LEGAL OPINION AND WHY IS IT USED?

Legal opinions are formal letters typically provided to confirm a specified legal position in relation to a document or a suite of transaction documents.

For example, a firm practising English law may be asked to opine on whether:

When a company director fails to carry out their legal responsibilities, they run the risk of being disqualified. This can be a lengthy procedure resulting in a period of disqualification during which it is not permitted to form, promote or manage a company.

The main law governing disqualification is contained in the Company Director Disqualification Act 1986.

Grounds for disqualification as a company director

As reviewed previously, the impact on Covid-19 losses will result in a steep increase in insurance claims under business interruption, public liability, product liability, employer’s liability, asset management, directors and officers, professional liability, errors and omissions, and marine insurance policies.

In Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors [2020] EWHC 54 (Ch), ICC Judge Barber has confirmed that directors of insolvent companies remain subject to fiduciary duties, even after those companies enter into an insolvency procedure.

Background

Wrongful trading laws have been suspended. But other relevant laws remain unchanged. Critically directors remain subject to the creditors’ interest duty. Read our article which examines the current position and highlights other key issues to be kept firmly in mind by directors and those advising them in these challenging times.

The Business Secretary Alok Sharma has proposed a relaxation to the current insolvency rules, in the hope that the measures will give companies some breathing space in the face of COVID-19.

Suspension of wrongful trading rules

The proposed changes include a temporary suspension of wrongful trading rules, which Alok Sharma suggested would apply retrospectively from 1 March 2020 for an initial period of three months.

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.

The Government has launched a number of initiatives to assist companies and businesses to trade through the current financial stress. But what should directors still be aware of as they steer their organisations through these unprecedent times?

Cash flow and current and future liquidity are now real concerns for many businesses during this COVID-19 pandemic. Increasingly, the attention of directors and the wider economic ecosystem is turning to consider the issues of approaching insolvency and the duties of directors.

In line with the current approach of the UK Government to support businesses, on Saturday, 28 March, the Business Secretary, Alok Sharma, announced that UK wrongful trading insolvency laws are to temporarily change to help give businesses and directors some "breathing space".