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22 April 2020

Business Rescue and Recovery Options Post Covid-19

A moratorium giving companies breathing space from creditors and a new court-based rescue tool to assist with restructuring are among measures anticipated in new UK insolvency legislation, details of which are expected to be announced by the Government shortly.

The new Insolvency Framework is expected to include restructuring tools that mirror the USA’s Chapter 11 procedure. However, there is a question mark over how quickly new measures would be implemented in Northern Ireland given that Insolvency Rules introduced in England and Wales in 2016 have yet to be adopted here.

Anticipated new corporate rescue and recovery measures could assist businesses’ post-Coronavirus recovery’ says FPM Corporate Restructuring Director Seamas Keating.

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Meanwhile, under existing law, Northern Ireland companies have two business rescue options — Administration and Company Voluntary Arrangement (CVA).

  • Administration is used where a company’s business can be rescued as a going concern. It can be ‘pre-packed’ (where the company arranges to sell all its assets to a pre-determined buyer prior to appointing an administrator) and/or it can restructure a business with the approval of company creditors. In recent times, there has been significant discussion about the need for a lighter form of Administration. A draft consent protocol agreement is currently being developed to give company directors more input into the Administration process with the Administrator’s consent.
  • A CVA allows a company to enter into a contractual binding agreement with creditors for compromise of a company’s debt via a restructuring plan.
Covid-19

Covid-19 lockdown has severely impacted many businesses. Under existing legislation, where a viable business is struggling due to the impact of the pandemic, Administration can provide a means to rescue the business as a going concern. An Administrator can consent to existing directors continuing to manage the business under his/her supervision without seeking creditor approval. The business can be preserved under the protection of the Administrator who, when appropriate, can then restructure the company and its debts via a Scheme of Arrangement, CVA, or the Government’s new insolvency mechanism. It is vital that struggling businesses seek advice early to allow time for full consideration of the available rescue options. This will optimise their chances of success and ultimate business survival.

Contact Seamas

Seamas Keating / Director

s.keating@fpmaab.com

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