It will not be news to anybody that coronavirus (COVID-19) is having a catastrophic impact on most businesses. Governments internationally are all facing the same crisis and are being forced to take urgent and unprecedented action to limit the fall out and assist businesses in surviving this period of uncertainty.
The Royal Courts of Justice recently announced that all winding-up and bankruptcy petitions currently scheduled for hearings are now being adjourned to hearing dates in June 2020 onwards.
The judiciary has noted that it is not appropriate for the general winding-up and bankruptcy list to be conducted remotely.
It is however likely that much bigger changes are afoot. It was reported this week that The Department for Business, Energy and Industrial Strategy has already canvassed insolvency and restructuring experts on a possible suspension of wrongful trading laws and the possibility of implementing a temporary moratorium for businesses undergoing a restructuring process, during which time they cannot be put into administration by creditors.
In order to understand what changes are likely to come into place, it is helpful to look at some of the key developments that have already taken place internationally.
On 22 March 2020, the Australian Government announced the following changes to the law, as a result of the coronavirus crisis, which will last for six months, unless extended further:
- a moratorium against personal liability for ‘insolvent trading’, i.e. failing to prevent a company incurring debts while insolvent, for debts incurred in the ordinary course of business;
- an increase in the debt required for creditors to be able to issue a statutory demand on a company from $2,000 to $20,000;
- an increase in the time to satisfy a statutory demand from 21 days to six months;
- an increase in the threshold for a creditor to serve a bankruptcy notice from a judgment debt of $5,000 to a judgment debt of $20,000; and
- an increase in the time period for individual debtors to respond to a bankruptcy notice from 21 days to six months.
The Australian Taxation Office has also announced that it will enter into arrangements with taxpayers as necessary, including temporary reduction of payments or deferrals, or withholding enforcement actions.
On 19 March 2020 Royal decree-law 8/2020, dated 17 March 2020, was published in the Spanish Official Gazette, which set out the following urgent measures to fight social and economic impact of Covid-19 coronavirus:
- A moratorium on mortgage payments and of the accrual of ordinary and default interest during the state of alarm’s duration. Lenders will therefore not be able to request payment of any amounts owed under the loan agreement, nor will they be able to trigger any events of default set out in the loan agreements;
- whilst the state of alarm remains in force, directors of a company which is insolvent are not under the duty to request the judicial insolvency declaration; and
- any petition filed by a creditor will not be conducted until two months have elapsed since the cease of the state of alarm.
In addition to providing the multi-billion Euro rescue package for Germany, the German government has already introduced emergency laws to ban winding-up petitions during the COVID-19 crisis.
It has also been widely reported that the federal government intends to suspend the obligation to file for bankruptcy until 30 September this year.
Whilst it is unclear exactly was measures the UK government will elect to take, the measures outlined above give a good indication as to what they may well be considering and what could be in the pipeline.
Whilst these measures, if they are to come in, may well give businesses a breathing space it remains vital for businesses to work with their key stakeholders and seek advice on what steps they can take to best protect both the business and its directors from potential creditor action further down the line.
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