The coronavirus pandemic has led to many businesses that were flourishing, now finding themselves in a position that they could never have planned for. We have been approached by a number of businesses seeking guidance and advice on what they can do to deal with debt. This is regarding both debts that they are owed as a creditor and in different situations, debts that they owe themselves, to others. Debt affects businesses, individuals, companies, both commercial and residential landlords and tenants and employers and employees. This article seeks to give an overview of the current developments and options.

Before the coronavirus, when dealing with debt, creditors would have had three main options. They could seek to negotiate a deal, pursue proceedings in Court or by way of a bankruptcy or winding up petition, depending on the amount claimed and whether they were pursuing an individual or a company. However, following the coronavirus, the Government has introduced measures and guidance in an attempt to ring fence the coronavirus crisis with the aim of saving the UK and global economy. Collaboration and co-operation appear to be the new approach – and on a scale previously unseen in the UK.

Prettys can assist you as your lawyers and business advisors. We are court and insolvency specialists with expertise in advising, mediating and negotiating settlements in debt disputes. We also have significant experience in corporate restructuring.

The Current Climate - New and Proposed Legislation

Traditionally in the English Courts, breach of contractual terms were viewed rather coldly. Fall foul of your obligations and you were liable for the consequences. While the Civil Procedure Rules (CPR), the rules that govern the court process, have always sought to encourage negotiation and settlement, this was always with a view to saving court time and costs. The fact that a debt was due and owing meant that under the law, it should be paid, in the absence of good legal reason.

However, the Government has recently introduced new provisions and measures with a view to assisting businesses and individuals that find themselves in financial trouble as a result of the coronavirus. For example, it has introduced, as part of the Coronavirus Act 2020 and the recent amendment to the CPR by way of Practice Direction 51Z, restrictions on residential and commercial landlords being able to recover possession of premises in the courts until after 30 June 2020 (commercial leases) and 30 September 2020 (residential leases). The validity of the Practice Direction was upheld (subject to a potential appeal) in the very recent case of Arkin v Marshall [2020] EWCA Civ 620.

Mortgage payment holidays have been introduced.

As part of the response to coronavirus the Government announced that it would be bringing forward insolvency reforms. These were introduced to Parliament on 20 May with the Corporate Insolvency and Governance Bill 2020 (https://publications.parliament.uk/pa/bills/cbill/58-01/0128/cbill_2019-20210128_en_1.htm).

The Bill seeks to introduce a moratorium for companies who are either insolvent or close to it that need a breathing space. Once the moratorium is in place it prevents the presentation of a winding up petition and provides payment holidays on any debts including goods and services, rent, wages and salaries and financial services including bank loans. It will also bind floating charge holders.

The Bill also proposes to force suppliers to keep supplying the company that is the subject of the moratorium irrespective of their terms of business, subject to their being paid and not subject to financial hardship as a result. There is a small company exemption here.

The Bill also seeks to suspend the wrongful trading provisions of the Insolvency Act 1986, and to provide longer extensions for filing documents at Companies House. The temporary suspension of the wrongful trading provisions should give company directors greater confidence to continue to trade during the Coronavirus emergency, without the threat of personal liability.

It seeks to introduce a new restructuring procedure that should make it easier for a company to have their restructuring plans adopted.

Finally, the Bill proposes to restrict the ability for winding up petitions to be brought during the period 27 April to 30 June.

These proposals enable UK companies undergoing a rescue or restructuring process to continue trading, giving them breathing space that could help them to avoid insolvency.  The Bill is next debated on 3 June 2020.

Government guidance has also been published on acting fairly and responsibly when faced with contractual issues caused by the Coronavirus crisis (https://assets.publishing.service.gov.uk/government/uploads/system/
uploads/attachment_data/file/883737/_Covid-19_and_Responsible_Contractual_Behaviour__web_final___7_May_.pdf). The guidance urges the parties to show forbearance when faced with a breach of contract scenario and to try and work with the other party with a view to reaching a compromise or using alternative dispute resolution.

As mentioned above, the CPR, irrespective of the coronavirus, has always encouraged the parties to mediate and seek to settle through early action with such measures being detailed in the Pre Action Protocols to the CPR. A party that does not exhibit suitable behaviour can be punished by way of court sanctions, usually in respect of costs.

There are also the Government schemes relating to business interruption loans and furloughing.

It is clear from the spate of new reforms and guidance that the Government does not want to see its huge investment to date to keep the economy intact, potentially ruined by litigation. There has been speculation that the Government may pass even more legislation to protect businesses, jobs and the economy against litigation caused by the Coronavirus crisis.

The question is, that with the Government’s financial support seemingly tapering off towards the end of the Summer, where might that leave cash starved businesses that cannot take action through the courts to recover what they are owed, and who as a result, cannot pay the debts owed to their suppliers? Can debt be ignored for now and what can or cannot be done?

Given all of the Government’s measures and guidance, at least for debts and issues incurred during the coronavirus crisis, it appears that restraint, reasonableness, rescue and recovery and going to be the way forward. Choosing the appropriate course of action is likely to need a little more consideration than before the pandemic.  This may mean that to weather the storm you will have to look to trim your belt until things improve. It could be that you now have more options available to you because of the proposed changes to the Insolvency laws, than you had before the coronavirus.  You may even wish to merge or purchase another company or business.

We can advise you on your best strategy.

How Prettys can help you to achieve your best outcome?

Business and Legal Advice

As solicitors and business advisors, we can advise you on your position and the options that are open to you.

Negotiations

We are used to negotiating settlements and will seek to give you the best negotiated outcome where possible. By instructing us, you are giving your opponent a clear message that you are taking the matter and your position very seriously and that you are not going to be taken advantage of.

Similarly, we can provide you with an objective view and guidance in relation to what the best and most practicable course/s of action and realistic outcomes are.

Refinancing and restructuring the debt

We can give you advice and guidance on how you might refinance and restructure the debt and put you in touch with banks and professional advisors that can help you.

Alternative Dispute Resolution including Mediation

We have a wealth of experience in all major forms of alternative dispute resolution, from mediations, through to adjudications, arbitrations, expert determinations and more.

Court proceedings

For creditors, we can seek to ensure that where possible, the debt is pursued as swiftly and as efficiently as possible.

For debtors, we can advise you on your best outcomes and if we cannot negotiate you to a better position, we can give you the best options open to you.

We can advise on enforcement action and how best to counter it, where possible.

Insolvency

We can advise you on both bankruptcy and company insolvency. We pursue and defend regularly in both areas. We can put you in touch with Insolvency Practitioners and other professional advisors where appropriate.

Individual and Company Voluntary Arrangements (IVA/CVA)

Sometimes, there is a bigger picture. An individual may be able to eventually pay off all of their debts. However, they may need to have a little breathing space to do so. Similarly, a company may be able to trade out of its position, but not immediately. We can advise you on the suitability of an IVA or CVA and put you in touch with a suitable Insolvency Practitioner, should it be merited.

Administration

In certain circumstances, an alternative to a winding up or CVA is administration. Here, an Administrator is appointed to run the company until its position improves and/or, it can be sold. The Administrator’s role is similar to a Liquidator, in that they take over at the company and take account of its financial position. However, there is a different emphasis in terms of the goal for the company.  We can provide you with advice on your options.

Company Restructuring

It may be the case that you can turn around the company’s position without the need for a formal insolvency process. You may however, have to make some hard decisions and implement them, such as redundancies, terminating leases and moving to smaller or more reasonable premises, or arranging financing or a share issue. We can through our specialist litigation, employment, property and corporate recovery teams provide a multi-faceted but seamless service and linking in with other professionals where appropriate.

Company Sales and Purchases

It may be that the best way out of a difficult situation is to sell your business or company. Our corporate team has years of experience in advising business and individuals about their options and carrying them into effect.

Landlord and Tenant

If you are a landlord, we can advise you on the validity of serving a notice and the likelihood of forfeiture or possession proceedings succeeding. Similarly, we can advise you on how best to deal with the recovery of any outstanding rent or its management.

If you are a tenant, we can advise you on your options regarding your tenancy and any rent payment issues.

Conclusion

Whatever your position, business or legal need, Prettys can advise you as your trusted business advisors and solicitors. We will work with you to try and ensure that the best options are selected for your circumstances and that matters run as smoothly and efficiently as possible by giving clear and objective advice and always with your best interests in focus.