The outbreak of coronavirus COVID-19 represents one of the most significant global public health crises in recent memory and is causing major disruption and unprecedented volatility in markets, economies and businesses. With such great social and economic uncertainty, it is inevitable that existing financial arrangements will be affected and asset-based lenders (ABLs) are not immune to this. They are, however, uniquely positioned – given the flexibility of the products they offer – to react to the ever-changing economic landscape.
Welcome to this bulletin from 1 Chancery Lane's Property, Chancery and Commercial Law team.
In this edition:
The UK government has announced that it will introduce legislation at the earliest opportunity to, among other things, give businesses greater flexibility to help them emerge intact at the end of the pandemic.
The Government has announced they will be relaxing the law for companies undergoing a rescue or restructure process, giving them breathing space that could help avoid insolvency.
Company insolvency
When is a company insolvent?
In general terms, a company is insolvent if it is unable to pay its debts as and when they fall due.
A company may also be considered to be insolvent if the value of its assets is less than the amount of its liabilities, taking into account contingent and prospective liabilities.
Covid-19 has introduced significant uncertainty to any assessment by directors about their company’s solvency.
Proposed changes to UK insolvency laws aim to support companies under pressure due to COVID-19.
On 28 March 2020, the UK government announced a number of reforms to UK insolvency laws:
On Saturday 28 March 2020, the Government announced significant changes to UK insolvency law to help companies and directors weather the economic storm caused by the Coronavirus (COVID-19) pandemic.
As part of a range of measure to help companies, the Business Secretary, Alok Sharma, announced:
The UK Government has announced that:
It will temporarily suspend the offence of wrongful trading by directors of English companies for 3 months Amend insolvency laws to bring in more debtor friendly style processes where English companies can continue to trade while negotiating a restructuring solution with their creditors.
As ever, we await full details and legislation.
Wrongful Trading Suspension
As most businesses, landlords and property solicitors will now know, s.82 of the Coronavirus Act 2020 (“CA 2020”) means there can be no forfeiture for non-payment of rent until July 2020, possibly later (“the relevant period”). But forfeiture has never been the only option open to a landlord whose tenant isn’t paying rent. The government lockdown was announced just two days before the March quarter day, with the inevitable consequence that many businesses did not pay the March quarter day rent.
On 28 March 2020, the Business Secretary, Alok Sharma, announced new insolvency measures to support companies under pressure as a result of the COVID-19 outbreak. In summary, the government is due to: (i) implement the landmark changes to the corporate insolvency regime that were announced in August 2018 (as discussed in Weil’s European Restructuring Watch update on 7 September 2018); and (ii) temporarily and retrospectively suspend wrongful trading provisions for three months.
Proposed Changes to the Corporate Insolvency Regime