COVID-19 and corporate restructuring & insolvency – week 3

Going through the gears

For those of you who have been keeping up with Mike Pavitt’s weekly lockdown digests thus far – and for those who missed them, you can catch up here

• COVID-19 and corporate restructuring & insolvency – week 1
• COVID-19 and corporate restructuring & insolvency – week 2

you will perhaps be relieved not only to hear from a different member of our Corporate Restructuring & Insolvency team this week, but also that it has been (in so far as any of us are really maintaining a clear routine any more) a shorter working week. However, even as I write this blog on the morning of Maundy Thursday (9 April), the week has not disappointed us so far, with the government, the courts and other agencies all keeping us suitably entertained with significant developments on an almost daily basis. We will try to help you keep up with one or two of the more important ones.

You may recall that in week 1 Mike traced our rapid adaptation to the new (ab)normal, and in week 2 our reasons to be grateful for the restructuring profession during unprecedented times, despite the emergence of an underbelly of uncooperative conduct amongst debtors and opponents. This week, following our own upward curve, we learned a little more about the tools the insolvency profession is both being given and fashioning for itself as the “stay at home” campaign looks set to continue for the foreseeable future.

Whilst we do not yet have much flesh to put upon the bones in terms of the impending corporate insolvency reforms planned by government, we have in the meantime seen the publication of an extremely well drafted ‘light touch administration’ protocol drawn up by some of the best brains in the industry. In the spirit which has typified the profession’s collaborative response to the crisis so far, this has been shared freely for the benefit of all who can see the benefit of placing good businesses which will need to be restored to their directors in a sort of cryogenic stasis moratorium offered by a suitably timed and conducted administration rescue process.

HMRC meanwhile have been putting out important material in a series of webinars, followed by Question and Answer sessions targeted primarily at SMEs, and gearing up for the official launch of the Coronavirus Job Retention (“Furlough”) Scheme (CJRS) on 20 April, when they will contact businesses to tell them what they need to do to access the funds which in many cases will be needed to help cover the April payroll.

In the past day or so, Companies House has joined in on the act, relaxing age old restrictions on filing of PDF copy documents which is going to make the working life of insolvency practitioners and others significantly more efficient, and even saying that they will accept declarations of solvency in Members’ Voluntary Liquidation filings which have been sworn electronically. There are still potentially legal issues with electronic authentication as I shall touch upon below in the context of court documents, but these are all steps in the right direction which will hopefully transform the insolvency industry’s ability to deliver timely remedies long after the current restrictions have been lifted.

However, of all the many innovations we have seen this week, I am going to focus my attention for now on just one of the new tools – mainly because it is likely to have the most direct impact on my daily practice.

The Temporary Insolvency Practice Direction (TIPD) – Key Features

Having myself been banished by my significant other to work from varying different rooms throughout our 1-bedroom flat to accommodate each other’s daily schedules (only now am I allowed to sit at the desk in the lounge, from which I write this blog), I believe I now understand more fully the need for temporary, situational changes in order to ensure matters can be dealt with effectively during this time of uncertainty.

The Courts, too, have cottoned on to this, introducing the TIPD which will continue in force until 1 October 2020, albeit I for one am dearly hoping to be allowed outside freely again long before this.

The key changes that the TIPD brings to the table are:

1. Filing of Notices – Specific timings are provided to avoid any ambiguity on the filing of notices of intention to appoint and notices to appoint (an administrator). Usually, these are based off the times that a particular Court counter is open which, of course, can vary depending upon where the notice is filed.

The TIPD sets these times between 10:00 and 16:00 respectively during usual court opening times, which are rather reasonable in the circumstances. Whilst this does cut the Rolls Building filing window by 30 minutes the improved clarity is, in my opinion, more than a fair trade off and I hope this will be adopted wholesale after 1 October 2020. Too often prior to this innovation we would see applications being brought by administrators to ask the Courts to declare their appointment valid, along with any actions taken by them during the “grey period”, solely because notices had been logged as filed outside of counter times. This was, frankly, a waste of court resources, and bringing clarity to the matter should ensure that such resources as are available are focused on preserving businesses and jobs.

Whilst we are, perhaps, unlikely to see too many funder appointments in the current months, it appears that the TIPD does not interfere with current arrangements which permit qualifying floating charge holders to file an appointment outside of core hours. For notices filed by a company or its directors outside of those hours, however, these will simply be treated as having been filed at 10:00AM on the day that the courts are next open for business. Notices of intention to appoint will, accordingly, run their 10-day period from that date.

2. Hearings & Listings – All applications, petitions and claim forms (save for winding-up and bankruptcy petitions to be heard by an ICC Judge in the Rolls Building in London) currently listed before 21 April 2020 are adjourned and will be re-listed in due course following further guidance being published by the respective courts (although this can be sooner, rather than later, if one of the parties considers the matter urgent enough to warrant this and, upon requesting this by following a prescribed process under the TIPD, a Judge agrees).

3. Remote Hearings – Unless ordered otherwise, all insolvency hearings will be conducted via Skype for Business or such other technology as the parties and court agree in advance of the hearing. Judges are permitted to determine, for whatever reason, during a remote hearing that it is inappropriate to continue the hearing and if so, then the hearing shall be adjourned and a new hearing date and time will be fixed by the court.

Of course, Skype is still one of the major household names in video conferencing but it has become clear over recent weeks that applications such as Zoom (business) (through which our Dispute Resolution department recently held our “Virtual Coffee Morning”) are often more accessible, and we would expect the courts’ preference to ultimately reflect the preferences of court users since this is likely to deliver the best access to justice. Even so, it is a matter for the parties to ensure that they are satisfied with the data security arrangements, particularly for more sensitive matters.

4. Statutory Declarations – whilst the above temporary provisions seem to have taken a sensible approach, it is the direction with regard to statutory declarations that stands out the most and is likely to be of concern for many legal practitioners.

It is important to remind ourselves that courts setting court rules on what will amount to an acceptable filing do not have the power to suspend or disapply Acts of Parliament, such as the Statutory Declarations Act 1835 or s.89 Insolvency Act 1986 (which deals with statutory declarations of solvency in MVLs), and that the consequences of an invalid declaration of solvency, for example, can be severe.

Furthermore, whilst all solicitors, like compulsory liquidators and administrators, are officers of the court, it is not the court (nor for that matter Companies House) which regulates solicitor conduct, but the Solicitors’ Regulation Authority (SRA). Whilst the TIPD guidance is helpful in terms of ensuring companies can access the Insolvency Act relief they seek, therefore, it does not in any sense absolve an independent solicitor from their obligation to ensure that statutory declarations are administered lawfully and appropriately to the circumstances. IPs’ should therefore be slow to assume, at least until such time that the Law Society and/or the SRA have provided much needed professional guidance on this point, that it will necessarily be a straightforward matter to be able to find a solicitor willing and able (in view of their professional regulation, possible constraints by their insurers and so on) at the drop of a hat to conduct what is still an untested concept, namely a video link assisted statutory declaration.

In the meantime, R3 has published a list of solicitors who have specifically said they are willing to conduct such swears in person – taking into consideration government guidelines on social distancing – and I myself, did one of these on Monday of this week to assist an old colleague at my previous firm, where an electronic swear had been deemed inappropriate.

Understandably, the main concern at present is the health risks of meeting individuals in person which is entirely understandable but it should now be for the regulators to urgently address this issue and provide guidance on what they would deem acceptable circumstances and methods for conducting a statutory declaration other than in the same physical space as the declarant. Suggestions abound now as to how video link swears could best be accommodated, so we would hope that a formal statement or protocol from the Law Society and/or SRA shortly.

Rounding Up

Overall, it appears that the Courts are looking to ensure a streamlined, if somewhat reduced offering during this period of time whilst the Coronavirus has such an influence over “business as usual” but this is not something that can be achieved by one institution alone.

Regulators and practitioners across the insolvency profession clearly need to work closely together now to ensure good implementation of the new rules, sharing of best practice and know how which will stand us all in better stead when the crisis is over. Whilst this is obviously an extremely difficult time for everyone, by working together for the benefit of all involved – even if parties are poles apart on their respective positions – we will hopefully (and the irony will not be lost on us) draw our profession ever closer together, just as we keep physically further apart. This is how we shall play our part in getting the economy back on its feet as swiftly as possible.

For our part, the CR&I team at Paris Smith will continue to lobby and campaign for effective change, and for clarification where needed, alongside our day jobs of progressing insolvency transactions, disputes and litigation, and advising current and prospective clients of the firm looking to access appropriate advice and representation.

In case this is of interest to you or your clients, we have compiled an evolving list of FAQs which have been posed – in one form or another – to our team “COVID-19 and insolvency FAQs”  and to the wider firm ” Coronavirus frequently asked questions“. Paris Smith is a full service firm, well placed to help almost any business or individual looking for legal solutions, and we would be delighted to help. Please contact any member of our CR&I team for further information.