It is fair to say that the speed and impact of the coronavirus pandemic is unprecedented in recent times. The government had very little thinking time to introduce measures to off-set the devastating commercial effects of global lockdown and act as a safety net to salvage businesses and jobs. Amongst the government actions aimed at limiting the brunt of the economic damage brought about by coronavirus pandemic, the new light-touch court-sanctioned restructuring process enabling businesses of all levels, including foreign companies that meet the criteria of "sufficient connection" and have obtained a court order, is likely to be one of the most crucial measures in preventing wholesale commercial collapse.
Virgin Atlantic is one of the first organisations to access the new process brought in by the Corporate Insolvency and Governance Act 2020 that the government fast-tracked through Parliament in response to the consequences businesses faced due to the effect of the coronavirus pandemic. Virgin Atlantic has announced a comprehensive refinancing rescue package that removes the risk of crashing into administration, provided the creditors agree. Initially, when faced with the sudden and catastrophic halt of aerospace industry Virgin Atlantic went to the government with its begging bowl but was rebuffed and told to attempt to seek out a solution. The Chancellor of the Exchequer, Rishi Sunak, indicated that before state aid would be available all existing government schemes and companies' existing shareholders should be pursued. Mr. Sunak and the government's actions have been vindicated as a substantial refinancing rescue package has been secured with a combination of deferred payment and capital injection to stabilise the organisation.
The objective of the Corporate Insolvency and Governance Act 2020 is to provide businesses with greater flexibility as well as the breathing space to find a way to continue trading during these exceptionally difficult times.
The key factors of the Act are:
- A new moratorium which is not part of a formal insolvency process
- A new restructuring plan
- No statutory demands or winding up petitions can be presented in connection with debt arising from the coronavirus crisis
- Retrospective suspension of wrongful trading
- The protection of supplies of goods and services
The key reform which could make the difference between survival and failure of a business in difficulties is the new provision of a moratorium which gives the opportunity, under certain circumstances, to find a solution to rescue the business. Vincenzo Senatore, a partner, stated "the fact that foreign businesses that meet the criteria can also be dealt with under the new Act is a most welcome inclusion and will be of particular assistance in the hospitality sector." He further commented, "the provision of breathing space allows the directors of a company the opportunity of reviewing all the options and making a sound considered decision."
In order to obtain a moratorium the directors of an eligible company must file the relevant documents at court together with a statement from the directors that they are requesting a moratorium and indicating that the company is likely to be unable to pay its debts or is already unable to pay its debts due to the coronavirus crisis. A monitor must be appointed that has suitable qualifications to fulfil such an obligation and consents to act as a monitor. The monitor must also state that, in their view, it is likely that the period of the moratorium would enable a rescue package to be developed that would enable the business to continue as a going concern. If granted a moratorium lasts for a period of 20 business days and can be subject to an extension of a further 20 days provided the directors can show that the debts of the company have been met or will be met. Should any further extensions be necessary the agreement of the creditors must be sought, up to a maximum of one year. The court can also grant an extension to a moratorium. During the period of the moratorium insolvency proceedings cannot be brought against the company except by the directors if they notify the monitor.
The refinancing package must have the approval of 75% of all creditors or 75% of one class of creditors. The court has the ability to approve a rescue plan if only one class of creditors approve and any others do not, permitting so-called cross-class cramdown aimed at preventing a viable restructuring package to be blocked, but only on the provision that the objecting creditors will be no worse off than if the "relevant alternative" is applied. The court considers the "relevant alternative" is whatever would occur to the business if the rescue plan did not go ahead. Creditors may apply to the court for relief in the case of hardship.
A company cannot rely on the Corporate Insolvency and Governance Act 2020 if formal insolvency proceedings have already begun in the previous 12 month period, or, it has been subject to a moratorium (unless the court orders otherwise), also, if during the past 12 months it has been subject to a CVA or administration.
The period of breathing space and protection from any actions to close a struggling business is likely to be the salvation of a number of businesses large and small leaving them able to rise again.
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