Restructuring and insolvency trends arising from the coronavirus pandemic

We are still in the early days of the economic shock of the coronavirus, with positive trends not yet clear. Restructuring specialists at Keystone Law have combined our experiences of enquiries from businesses, Insolvency Practitioners (IPs) and other stakeholders during lockdown and noted the following developments which will help businesses and advisors prepare for a post-lockdown business environment:

• Well-run businesses with a cash cushion are putting staff on furlough but are suspicious of the loan scheme. Many directors are reluctant to put themselves onto furlough, even where they will only be going to the office once a week to check the post and chase debts.
• There are signs that some businesses may be looking for money which may well end up with directors or affiliates or which may otherwise be badly spent. The purposes on which public money will be spent must be properly considered. Liquidators and other insolvency office holders may well be called upon to look at recovering funds taken or used improperly. For example, was that landlord or supplier a connected party?
• Will there be a flock of “dirty phoenixes” with some businesspeople prepared to assume that, in what is sometimes being called a “war footing”, the ordinary laws do not apply? Will IPs and the courts be able to deal with increased applications for the re-use of company names after liquidations?
• Many IPs and lawyers had an initial manic period of providing non-fee-earning telephone advice, but several now appear to be hunkered down waiting for the lockdown to finish.
• Information from The Law Society Gazette and elsewhere shows that professional firms are considering their options by furloughing or reducing working hours for staff, discussing drawings reductions, recruitment deferral schemes and cash calls.
• Landlords are taking some very hard knocks. There are rumblings about force majeure and whether tenants really need those expensive offices in the City or Spinningfields, where productivity apparently seems reasonable from home working.
• Borrowers and lenders are reviewing facility covenants carefully and, in many cases, nervously. One area of analysis and uncertainty is over material adverse change clauses; in the current context, how will these properly be construed and what effects will they have?
• Investment funds seeking to acquire businesses at what they regard as cheap valuations might become more relevant over time.
• The precise effect of the temporary suspension of the wrongful trading rule remains to be seen, bearing in mind that other creditor-related duties of directors have not been suspended.

We will continue to monitor the trends and report again in the future. In the meantime, we will welcome your comments. There will be a long road to recovery and Keystone Law will be there to advise and assist as required. If you have any questions or enquiries, please contact:

Mark Parkhouse, 020 3319 3700, mark.parkhouse@keystonelaw.co.uk

Aman Sehgal, 020 3319 3700, aman.sehgal@keystonelaw.co.uk

Trevor Sears, 020 3319 3700, trevor.sears@keystonelaw.co.uk

Tony Sampson, 020 3319 3700, tony.sampson@keystonelaw.co.uk

Philip Jones, 020 3319 3700, philip.jones@keystonelaw.co.uk

Stephen Young, 020 3319 3700, stephen.young@keystonelaw.co.uk