COVID-19: Timing of Corporate Recovery efforts critical in an uncertain Covid-19 environmentTuesday, 31 March 2020
There has been much commentary recently in relation to restructuring tools with a particular justifiable focus on examinership. It is a powerful remedy for viable businesses that have suffered a short term shock by reason of COVID-19 and the ensuing restrictions on business.
However, there are some immediate challenges which should give entities considering the remedy reason to pause. Arguably it is too early in this crisis for an independent expert (tasked with assessing the conditions on which a business might survive) to conclude that an applicant has a “reasonable prospect of survival”, as required by the legislation. Hopefully we shall have greater visibility soon on when we can expect to see the current restrictions having the effect of reducing the numbers of people falling ill, which should lead to restrictions on commercial life being eased. Directors/Business owners need to strike a balance between holding back from an examinership petition as against the statutory duty of directors to act in the best interests of creditors where the directors are of the view that the company is insolvent and may have had to cease trading during this emergency.
Forbearance and compromise should be the immediate objective for many companies and the third party stakeholders they deal with at the moment. Engaging with creditors, customers, and staff may provide the directors with options that they had not explored. Our other COVID-19 related updates address recent government supports for business, including the Temporary Covid-19 Wage Subsidy Scheme. If consensus with stakeholders cannot be achieved, advice should be taken in relation to the potential to use examinership to give companies the breathing space and new investment they need to survive.
As we are not yet fully cognisant of how long this current crisis will continue, some industry commentators have mooted that the maximum period of court protection (100 days) might be extended to address the particular challenges of the COVID-19 crisis. It has also been suggested that the law around reckless trading should be eased to allow directors more scope to continue to trade in the current environment. Clarity in relation to these issues would be much welcomed.
For further information, please contact John Fitzgerald from the ByrneWallace Corporate Restructuring & Insolvency Team, or your usual ByrneWallace contact.
Please note that the content of this summary does not amount to professional advice. Legal and tax advice should be sought in respect of specific queries. The COVID-19 situation is evolving rapidly and this update is provided on the basis of information available as at 31 March 2020.