What is available to stop creditors taking action against the company to recover debts during the current crisis?
The government has announced a number of measures to try to protect businesses during the current period of uncertainty. However there is no outright ban on creditors being able to take legal action to recover money they are owed, though there are temporary restrictions on some forms of legal action, like winding up petitions.
However, it is important to note that these measures only relate to winding up proceedings. Creditors will still be free to commence county court claims.
The new Corporate Insolvency and Governance Act 2020 brings in a new “moratorium” procedure. Businesses in financial difficulty that are viable and can be rescued will now be able to work with an insolvency practitioner to obtain at least 20 business days’ breathing space from creditors to allow the business to formulate a plan to deal with its financial problems.
For more information on the Corporate Insolvency and Governance Act, click here
As part of the raft of measures put forward by the government over recent months, there are also restrictions on landlords taking action to evict commercial tenants who miss rent payments. Various payment holidays and forbearance have been put in place in respect of certain tax liabilities and some business rates.
If your business is going to go into an insolvency process like administration or a company voluntary arrangement, there is the ability to obtain a freeze on creditors taking action whilst those procedures are put in place. However, these sorts of moratoriums will not be available to everyone and in any event not unless an insolvency process is being instigated.
Regardless of whether a business has formal protection from creditors or not, engagement with creditors and trying to reach agreement with them to deal with the debt is therefore vital. Much of the protection measures that the Government has introduced like curbing the ability of landlords to evict a commercial tenant, do not wipe out the debt. They simply prevent action being taken or a payment becoming due for a short time. All businesses should use that time to consider how those debts can be dealt with and engage with the relevant stakeholders sooner rather than later.
Related FAQs
As the coronavirus outbreak continues to develop, we have seen many countries begin to implement emergency procedures and legislation in an attempt to control the spread of the disease.
These have included bans on gatherings and public events, closures of shops, bars, restaurants and public spaces, and full lockdowns which restrict all but key workers to their homes except in certain limited circumstances.
This has a direct impact on businesses and their ability to operate. So what happens if a contract becomes impossible to perform because of emergency legislation?
For example:
- If you are a hospitality business, you have agreed to host an event, and gatherings are prohibited
- If you are a manufacturer or service provider, and your staff are required to remain at home, making performance of the contract impossible
Many will have worked collaboratively with their suppliers and customers to deal with the immediate public health crisis. This will have meant offering flexibility as to contractual arrangements, whether in delivery dates, volumes of goods or services supplied, or even in the specification of what has been delivered.
If this is the case, it is important that businesses now do their legal housekeeping and make sure they have a proper record of what has been agreed. Unfortunately, our experience shows that many legal disputes arise out of amendments to contracts, typically where the parties to the contract each have a different view about what exactly they agreed to change.
We would therefore advise businesses to review any amendments that they might have agreed either verbally, by email, or otherwise, and consider whether they need to be captured in a more formal way which will make clear exactly what has been agreed to be varied, and (where appropriate) how long that variation will remain in force.
It’s also important to remember that some contracts contain provisions that set out specific requirements about how amendments are to be made. For example, they might require that amendments are made in writing (rather than verbally). These “No Oral Modification” clauses are commonly found in commercial contracts, and the courts have recently shown that they are willing to enforce them.
Failing to deal with amendments in accordance with contractual requirements could therefore have a serious impact on businesses as they recover from the disruption caused by the lockdown. If they end up in dispute with a customer or supplier, a business could find that the contract has not actually been amended in the way that they think – potentially leading to legal costs and liabilities at the worst possible time.
The Government expects the use of bespoke contractual documents to implement temporary arrangements relating to your PFI contracts.
With time and resource precious commodities, focus should be given to documenting:
- The key changes to your PFI requirements
- The temporary nature of the measures
- The requirement for best efforts on behalf of the PFI Contractor
- The importance of continued health and safety measures at all times
There has been a significant amount of press coverage talking about institutional racism within the NHS not only in terms of the treatment of patients but also in terms of the low representation of ethnic minority staff in management positions. Whilst tackling that issue is beyond the brief here, it is important to recognise that sub conscious bias can, regrettably, play a part in decision making processes. An Employment Tribunal will explore a alleged discriminator’s conscious and sub conscious decision making and working in an environment which has not set out sufficient controls to avoid such sub conscious stereotyping places someone at a greater risk of being discriminated against.
In the context of the issues we are addressing here, i.e. risk assessments around BAME staff, as we have stated above, it is essential that BAME staff are represented at all levels in the discussion. Trusts need to be mindful that BAME are underrepresented in management positions.
BAME staff need to be included in the dialogue and need to have a safe place where they can challenge decisions that are being made in relation to them. There needs to be accountability in the processes applied. Meaningful conversations need to happen and concerns should not be dismissed.
The now defunct Guidance for the Tier system suggested that the clinically extremely vulnerable would be treated in the same way as those who were shielding in Lockdown 1. This means that anyone who is clinically extremely vulnerable and cannot work remotely, will be entitled to SSP. These employees should receive a letter confirming that they are deemed to be clinically extremely vulnerable/shielding and you should ask for a copy of it as evidence to support a claim for SSP. It is likely that the Lockdown 3 Guidance will be the same.
You could also furlough an employee in the clinically extremely vulnerable category. Again we do not anticipate this changing.