A Brave New World: Evolving Insolvency Law and Practice in Response to the COVID-19 Pandemic

  • Insolvency

We live in unprecedented times.

The Government and the Courts have been rapidly introducing measures in an attempt to ease the economic impact on UK business and individuals of the COVID-19 pandemic and the resulting “lock-down”.

Proposed Changes to Insolvency Legislation

On 28 March 2020, the Government proposed new measures to improve the UK insolvency system and provide greater flexibility to help businesses hit by the COVID-19 crisis. 

The main proposals:

  • Wrongful Trading - the temporary suspension, from 31 March 2020 for an initial period of three months, of the law on Wrongful Trading (under which a director of a company can be held personally liable for company losses incurred after the point in time when the director should have concluded that there was no reasonable prospect of avoiding insolvent administration or liquidation)
  • Business Rescue Moratorium - the introduction of a new moratorium (which has been under Government consultation since 2018), designed to prevent creditors from taking enforcement action whilst a rescue/restructure is being sought and also ensuring continued access to goods and services from suppliers essential for ongoing trading.

The Business Secretary stated that the legislation is to be introduced ‘at the earliest opportunity’.  It is expected that this could be as early as the end of April 2020.  For directors facing unprecedented difficulties in assessing the ongoing viability of otherwise sound businesses, the temporary removal of wrongful trading risk will be welcome. However, the Government did stress that all other directors’ duties and statutory causes of action under existing company and insolvency legislation would remain in force. It is not currently known whether the new Business Rescue Moratorium will include enhanced measures aimed specifically at tackling the COVID-19 crisis but the introduction of a new, more flexible, procedure of this type can only help otherwise viable businesses to survive the economic stresses of the current crisis.  As ever, the Government will need to walk the line between preserving businesses suffering in this crisis and the interests of creditors.

Temporary Insolvency Practice Direction 2020

In addition to proposed legislative changes, the Courts have also taken urgent steps to introduce temporary measures to help to deal with the some of the challenges of the COVID-19 pandemic.

The Temporary Insolvency Practice Direction (‘Temporary IPD’) came into force on 6 April 2020 and will remain in force until 1 October 2020.  It is intended to provide workable solutions for Court users during the COVID-19 pandemic and avoid, so far as possible, the need for parties to attend Court in person (whilst also managing reduced Court resources).  It also addresses some longer standing issues surrounding the use of the Court’s e-filing system.

The Temporary IPD applies to all insolvency proceedings in the Business and Property Courts and is intended to supplement, and where necessary, take precedence over the existing insolvency practice direction (July 2018). 

The key provisions are:

  • Adjournment and re-listing of pending applications – almost all applications and claim forms listed for hearing before 21 April 2020 are adjourned. If the matter is considered urgent then the parties can apply for it to be re-listed using a specific process (justifying the urgency).  Non-urgent matters will be re-listed pursuant to guidance issued by the supervising judge.   Winding up and bankruptcy petitions to be heard before an ICC Judge in the Rolls Building will be subject to a separate temporary listing procedure (listed in groups of two or more cases and given an allocated slot and a video conference link).  Petitions heard outside London will be re-listed using the same procedure once it has been put in place.
  • Remote Hearings – unless ordered otherwise all insolvency hearings will be conducted remotely using video meeting technology. If the Judge considers it inappropriate to continue with a remote hearing (e.g. due to technological failure) the Court will issue a notice of adjournment and fix a new time and date.  For non-petition hearings, the Court will send the parties an invitation or provide a link to video conference software or may direct a party to arrange a recordable telephone conference.
  • Remote Statutory Declarations – as required in relation to Administrations (and by extension Members Voluntary Liquidation), declarations may be attested via video conference provided that the attestation refers to the fact that it was conducted in this way.
  • E-filing notices of intention to appoint and notices of appointment - this clarifies various parties’ entitlement to file: notices of intention to appoint an administrator (NoI); and notices of appointment of an administrator (NoA), using the Court’s e-filing system (CE-File) and the effective time of those filings. The position can be summarized as follows:
   

Company/Directors

 

Qualifying Floating Charge Holder

 

 NoI

During Court Hours (10am –  4pm)

May use CE-File

Treated delivered to the Court at the time and date recorded in the Court’s automatic notification of filing

 

May use CE-File

Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing

 

  Out of Court Hours

May use CE-File

Treated as delivered to the Court 10am next working day

 

Temporary IPD silent

Unclear but can probably use CE-File. These filings are uncommon

 

 NoA During Court Hours (10am – 4pm)

May use CE-File

Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing

 

 

May use CE-File

Treated as delivered to the Court at the time and date recorded in the Court’s automatic notification of filing

 

 

  Out of Court  Hours

May use CE-File

Treated as delivered to the Court 10am next working day

Must use the fax and email process set out in the Insolvency Rules 2016

 

 

The Court staff will continue to review NoIs and NoAs filed by CE-File but the deemed time of delivery set out above will not override the Court staff’s ability to reject them for other reasons.  However, any delay in formal acceptance of an NoA by Court staff will not affect the validity and time the appointment takes effect.

Practice Direction 51Z to Stay Possession Proceedings

This practice direction, effective from 27 March 2020 (and ceasing to have effect on 30 October 2020), complements the provisions of the Coronavirus Act 2020 emergency legislation to prevent imminent evictions and delay possession proceedings in light of the ongoing COVID-19 crisis.

The practice direction provides that:

  • all proceedings for possession brought under CPR Part 55; and
  • all proceedings seeking to enforce an order for possession by a warrant or writ of possession,

are stayed for a period of 90 days from 27 March 2020 i.e. until 25 June 2020.  Note however that the automatic stay does not apply to claims for injunctive relief.

In the context of proceedings brought by a trustee in bankruptcy, the automatic stay would not prevent the trustee from obtaining a declaration of the trustee’s beneficial interest in a property, but it would stay any action for possession and sale of the property.

Comment

We live interesting times.  The full extent, and indeed the effectiveness, of the changes to insolvency law and practice in response to the COVID-19 crisis remain to be seen.  The imminent introduction of a new insolvency procedure, the Business Rescue Moratorium, represents one of the biggest changes in the UK insolvency regime in the last 10 years.  The interesting question is whether any of the temporary measures and practices being introduced in response to the COVID-19 pandemic are retained after the crisis is over.

 

For further information on the above, or any insolvency assistance, please contact us on 0207 467 3980 and speak to one of our insolvency law solicitors now. Alternatively, email us with your query at info@summitlawllp.co.uk and we will be sure to call you back at a time convenient for you. All communications will, of course, be dealt with in the strictest of confidence.

 

 

Article Author

Dan Kelmanson

Dan Kelmanson

Senior Associate