Each week COVID-19 continues the Corporate Restructuring & Insolvency team will report on the effects the Coronavirus outbreak is having on the corporate restructuring & insolvency world.
Corporate restructuring & insolvency – discovering the new (ab)normal due to COVID-19
Everyone keeps saying these are unprecedented times. Solicitors, barristers, judges and accountants who qualified before I was even born tell me they have never before faced such challenges as we have all faced this past week or so. As at the time of writing (7:30pm on Friday 27 March 2020 – one week into working from home for most of us), the civil courts had largely closed their doors (though not their computers) for the duration, as had the Official Receiver. There was new emergency breathing space legislation on the statute books and the threat of more to come, including the potential relaxation of the law on wrongful trading. The Chancellor of the Exchequer was throwing hand outs in every direction, effectively nationalising large parts of the private sector overnight. It was as if someone had picked up Sealy & Milman’s biblical guide to the Insolvency Legislation and tossed it from a high window. Such sweeping change is no doubt worrying, disconcerting, uncharted waters. It is all these things.
However, amongst it all, the insolvency profession – qualified insolvency practitioner accountants (IPs) insolvency solicitors, agents, lobbyists and even regulators – have been quietly but industriously doing what we have always done, what we are trained above everything else to do: we are adapting. An army of qualified advisors, we have the knowledge, the skills, the technology, the home offices and converted dining tables, and we are not afraid to use them!
There is an obvious reason why the insolvency profession is so adaptable, even more so than the legal profession. The tackling of insolvency situations is itself an exercise in change management. Most directors and individuals will have had limited exposure to existential financial threats, but insolvency professionals deal with these problems week in, week out and have for years been delivering vital results for the economy by identifying and preserving core, sustainable long term businesses and ensuring that they live to fight another day. For sure, the current obstacles and some (but by no means all) of the remedies are as novel as the virus which has brought us all to this pass, but the insolvency profession has been contending with recessions, evolving legislation and regulatory landscapes for many years, so perhaps more than any other profession they see the coming months as business as normal. In a sense, though we are anything but complacent, we have the perspective to look upon all other professionals as they roll up their sleeves and pick up the buckets to help fight the fires, with something bordering on amusement.
This past week has doubtless been an extremely busy one for all professions. Government policy and coordinated media coverage have ensured that there is a tremendous – perhaps overwhelming – amount of material in the public domain which businesses and their regular advisors can draw upon by way of first aid for their businesses, many of which have been forced to literally close their doors at a moment’s notice. My colleagues in Paris Smith’s employment and banking and finance teams (amongst others) have been producing guidance and template documents at a terrific pace on subjects from furloughed workers to government backed loan schemes, keeping step with developments on a daily basis and placing much of this – free to use – material on our website. Competitors, too, have joined the collective effort, with insolvency lawyers across the South, for example, collaborating to devise innovative solutions to such logistical problems as being able to swear statutory declarations, a necessary component of a number of formal insolvency procedures, without being physically in the same room.
In the past few days alone I have been involved in numerous instances of connecting existing and new clients of Paris Smith with self-help solutions, appropriate assistance from IPs and, of course, good old fashioned legal advice. I would like to think that every conversation I have had with a director or company accountant this week has ended on a more positive note than it began, and I have been delighted to hear from many quarters that landlords and creditors have been receptive to the approaches I have suggested. Of course there will always be those who place their own needs above everything else, and so I have also had to be firm with solicitors acting for claimants and creditors with unrealistic expectations, with some opportunistic debtors looking on COVID-19 as an excuse not to pay and some landlords determined to flout the intention behind government policy and cut their noses to spite their faces. Throughout the week, I have kept in touch via Twitter and e-mail with the insolvency trade body R3 (the Association of Business Recovery Professionals) to ensure that as we see abuses develop appropriate lobbying takes place to alert the policy-makers to the problem.
As the week draws to a close (and a weekend of more work no doubt beckons), however, I take pause for thought to remember that our efforts to keep businesses in business – however exhausting they may seem – are as nothing compared to the Herculean efforts of our NHS and emergency services fighting for our nation’s health, just as we do our bit by staying at home and fighting for one another’s financial health. Stay safe, everyone. Stay healthy. And if you possibly can, stay at home.
Stop Press (Monday 30 March 2020):
On Saturday 28 March 2020 the Business Secretary confirmed that the government will be bringing forward legislation for approval in Parliament when it meets after the extended Easter recess which will have the effect of:
- Creating a corporate breathing space on commercial debts and essential supplies (effectively an acceleration of reforms which have been in the pipeline for some years); and
- Suspending the wrongful trading prohibitions in the Insolvency Act 1986 for a defined term.
These reforms are expected to have retrospective effect, backdating to 1 March 2020. The first is to be welcomed, and the insolvency profession has been calling for additional tools for some time. The second is a policy decision designed to reassure directors that they can keep companies functioning and paying the payroll without the expectation of attracting personal liability for doing so. In truth, the reform is unnecessary in legal terms because directors are already protected in the current circumstances and all other expectations for director conduct remain intact. The best course is always to take and follow appropriately qualified, regulated advice from a qualified insolvency practitioner accountant, with whom I, Chris Parsons, or any of our Corporate Restructuring & Insolvency group can happily connect you should you so wish.
If you have any corporate restructuring related issues you would like to discuss please do email Mike Pavitt in the first instance.
Our dedicated “Coronavirus – Legal advice and guidance” page has further information for businesses, employers, employees, the self-employed and is regularly being updated as and when new guidance emerges from government and other regulatory bodies.