The Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020

The Government implemented both temporary and permanent reforms to the UK insolvency regime in light of the COVID-19 (COVID) pandemic and resulting economic crisis. Significant changes were made by the Corporate Insolvency and Governance Act 2020 (CIGA) which aimed to ease the pressure on businesses under financial pressure and avoid mass insolvencies.
CIGA came into force on 25 June, following an accelerated parliamentary process.
The moratorium procedure
CIGA introduced a new standalone moratorium procedure with the intention of giving companies space from creditors to turn around their business and avoid insolvency. The moratorium covers an initial period of 20 days. This initial period can be extended without permission for another 20 days and can be further extended with the permission of pre-moratorium creditors or the court. The moratorium involves an insolvency practitioner monitoring the company’s directors, who remain in control.
Companies eligible to use the moratorium should have been:

  • Incorporated under the Companies Act 2006 or, if unregistered, would be wound up under the Insolvency Act 1986.
  • Unable to or likely to be unable to pay its debts in the opinion of the directors.
  • Rescuable as a going concern in the opinion of the insolvency practitioner.

Wrongful trading (temporary)
CIGA also temporarily lifted wrongful trading restrictions which would prevent a company from operating during an impending insolvency. Normally directors could be subjected to personal liability for continuing to trade in the face of an impending insolvency under Section 214 and Section 246ZB of the Insolvency Act 1986.
Restructuring Plan
CIGA inserted Part 26A into the Companies Act 2006 (Arrangements and Reconstructions for Companies in Financial Difficulties) which applies to companies liable to be wound up under the Insolvency Act 1986. This permits creditors with genuine economic interests from participating in the formulation of a restructuring plan and for the court to be able to sanction plans it considers to be just and equitable.
The “Ipso Facto” regime
CIGA made changes to the effect of Ipso Facto termination clauses; these automatically entitle a party to terminate a contract or automatically terminate a contract without any election being made in the event that a certain event occurs, for example, insolvency. Suppliers cannot end contracts for non-payment of pre-insolvency debts.
The effect of this regime is widespread and some provisions have been included to prevent unfairness to suppliers. For example, they are able to apply to the court to be exempt from the regime if it would cause undue hardship to continue to supply a business. If a company enters into a standalone moratorium, debt owed to the supplier during this period will be prioritised over other creditors. There are exceptions for ‘essential suppliers’ and ‘small suppliers’, which are dealt with under separate legislation.
Further developments
There were concerns that the Act was rushed without consideration to certain stakeholders. The Pensions Regulator, the Pension Protection Fund, and other retirement scheme representatives felt the changes may negatively impact pensioners, as the moratorium would prioritise debts falling during this period over beneficiaries of underfunded undefined pension schemes. However, some of these concerns were addressed while the Corporate Insolvency and Governance Bill was being debated and also by the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020 (SI 2020/ 693) which came into force on 7 July 2020. There have also been concerns that that some creditors may be disadvantaged by the suspension of wrongful trading offences.
The temporary provisions will be phased out by the end of September and though the other changes are not subjected to time limits, however this may change in light of future developments.
For further information please contact Paul Cooper: paul.cooper@blaketurner.com or 020 7480 6655

Employment law updates – Coronavirus

Employment law updates: Coronavirus

Coronavirus Job Retention Scheme (CJRS) updates

Employment law updates – Coronavirus Redundancy payments:

  • The government announced on 30 July that workers who were furloughed will be entitled to a statutory redundancy payment based on their pre-furlough salary and not the reduced furlough salary. This was implemented by the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 which came into force on the 31st July.
  • Employees with more than 2 years of continuous service who have been made redundant are entitled to a redundancy payment up to a statutory maximum (which remains the same). This is based on age, length of service and salary.
  • The changes will also apply to Statutory Notice Pay and awards for unfair dismissal.

Furloughed workers:

  • Employers have been able to bring furloughed workers back to the office for any amount of time and for any kind of shift pattern since 1 July while still being able to claim the CJRS grant.
  • From 1 August the Government has advised that employers and employees should be able to exercise discretion as to whether they can work safely from the office.
  • The furlough scheme will end on 31 October 2020.

https://www.gov.uk/government/news/new-law-to-ensure-furloughed-employees-receive-full-redundancy-payments

https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme

https://www.gov.uk/government/speeches/pm-statement-on-coronavirus-17-july-2020

For employment law advice please contact Rupert Farr: Rupert.Farr@blaketurner.com or 020 7480 6655.

CASH FLOW AND CORONAVIRUS – What directors must do

Paul Cooper at Blake-Turner has for many years advised clients experiencing cash flow difficulties.  All too often an otherwise sound business hits a hurdle and all of a sudden it is “insolvent” because it realises it will not be able to pay certain debts as they fall due in the next few weeks and months.

To describe the current Coronavirus pandemic as a “hurdle” would be a massive understatement, but the responsibilities of directors remain exactly the same.

What directors must do

1.     Change your priorities:

As soon as the directors of a company realise that there is a real prospect of them not being able to meet their debts as they fall due (“cash flow insolvent”), whether now or in the future, then when making decisions they must make the interests of creditors paramount.  If they fail to do this, then they risk making themselves personally liable for some of the debts of the company.

2.     Plan carefully:

Whilst it is far from clear when the current crisis will end (this blog was created in March 2020), we are being given assurances by the Government and international organisations that will possibly be in around 3 months’ time. Also, that the government will assist by way of backing bank loans and paying 80% of furloughed employees’ wages.

Therefore, if you are a director of a company who envisages being cash flow insolvent in the coming three months you need to plan now.  If your business is fundamentally sound, you may well be justified in continuing to trade, even if that incurs a lot of debt, provided that you reasonably consider that when we emerge you are likely to be able to trade through those losses and pay off those loans. In those circumstances, creditors will obviously be far better off than they would be were you to simply give up now and allow the company to go bust.

3.     Record your decisions to protect yourself:

It is important to protect yourself personally as a director by keeping minutes of your board meetings at which you make the decision to continue to trade. Also, to regularly review that decision and minute each review and the reasons for your decisions. Also, keep copies of your cash flow forecasts as they evolve over time. If the worst subsequently happens, a contemporaneous record of your thought processes and decisions will be of great assistance in defending any claim against you personally by a liquidator or the Official Receiver.

4.     Seek advice:

If you carry out your cash flow forecasts, and budget thereafter, and come to a view that it is unlikely that you will be unable to trade through and/or recoup your losses and/or pay off the short term debt, then you must immediately seek advice from an insolvency lawyer such as Paul Cooper at Blake-Turner, or an insolvency practitioner.  A director can be made personally liable for certain debts if they continue to trade and spend money where it is not reasonable for them to do so, and in continuing to spend money and incur liabilities they will ultimately make the creditors worse off. Taking professional advice and minuting decisions will show you acted reasonably at all times and be crucial in ensuring you do not become personally liable.

5.     If it comes to the worst:

A business can often be saved by putting the company into administration and selling that business.  This is often by way of a pre-pack sale in which most if not all of the current debts of the company can be left behind and a new company continue to trade the business and save the employees’ jobs. Blake-Turner have extensive experience in this area.

There are also other options if you decide you cannot continue to trade, such as liquidation or a CVA.  Please click on the foregoing links for further information in that regard.

At Blake-Turner we have years of experience of assisting distressed companies.  We understand the desire to save and restructure where possible and we can advise you of various strategies by which you can do this.  Please contact Paul Cooper on +44 (0) 7967 014788 or at paul.cooper@blaketurner.com

Coronavirus: Employment law update

Coronavirus employment law update:

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters. Please contact Rupert Farr for more information at Rupert.farr@blaketurner.com or on 07799 065638.

The impact of the coronavirus (COVID-19) pandemic on businesses across the UK has been critical. Businesses across a wide range of sectors have been forced to let go of staff or have incurred significant costs due to staff absence. Measures were announced in the Chancellor’s most recent Budget to mitigate the impact including; Statutory Sick Pay (SSP) relief for SMEs, tax breaks, government-backed loans and an HMRC helpline. However, there are fewer protections for staff in place and freelancers may find themselves without work for an indeterminate period. As the situation progresses, it is likely that many more staff will have to be let go, and it is important that both employers and employees are aware of their rights and obligations. A statement was recently released by the Government strongly encouraging all workers who are able to work from home to do so. However, is not yet clear whether businesses will be forced to shut down to stop the virus from rapidly spreading. Many workers will not be able to work from home; particularly those in sectors such as retail, manufacturing and hospitality.

Employers should keep abreast of Government updates on COVID-19, and advise customers and employees on how they plan to deal with the impacts of the virus. Ideally there should be a point of contact for COVID-19 matters. Employers should also ensure that remote working arrangements do not result in weaker protections for client data or confidentiality. They should monitor employees who may have contracted COVID-19 and implement measures to minimise the risk of the virus spreading, for example, by reducing travel to the bare minimum. Particular attention should be given to those employees with disabilities and underlying health conditions and they may want to consider making alternative arrangements for those who are high-risk. Businesses should also check with insurance providers whether they are covered; this is unlikely to be the case for the majority.

Employees who have symptoms, or live with people who have, should check the most up to date UK Government and NHS advice online. SSP will be available from day one instead of day 4 and for those who have been let go, Universal Credit and Employment and Support Allowance is available.

Government advice and resources available to employers, employees and businesses:
https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters.

Please contact Rupert Farr for more information at: Rupert.farr@blaketurner.com or on 07799 065638.

For more information about business support relating to the Coronavirus Job Retention Scheme click here.

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Partnership Disputes and LLP Disputes

Before the introduction of the Limited Liability Partnership (“LLP”) as a legal entity in English law 20 years ago, the only form of legal partnership that existed was a partnership under the Partnership Act 1890.  A significant difference was that in an old style partnerships each partner had joint (but not several) liability.  In an LLP some or all of the partners have a form of limited liability similar to that of shareholders of a company.  Unlike a company, the partners have the right to manage a business directly.

As such, the range of partnership disputes is now wider than before and includes disputes between members (as they are known) of an LLP and not just partners of a partnership.

As with an old-style partnership, LLPs are often governed by an agreement between the members which are generally known and referred to as partners.  This agreement obviously comes into play in the event of a partnership dispute.  Absent a written agreement the relationship between the members and the LLP and third parties is governed by the Limited Liability Partnerships Act 2000 and the Limited Liability Partnership Regulations 2001 and subsequent amendments thereto.

Often one of the central features of a partnership dispute focuses on who has control of the LLP (or partnership) during the dispute between members or partners.

Focusing on LLPs there may well be a dispute resolution procedure in any written LLP agreement but in the absence of such, it must be remembered that under the 2000 Act each member has the right to manage the affairs of the LLP.  This, of course, can be curtailed or controlled by any LLP Agreement, but in the absence of one, it can lead to great difficulties not only between the members themselves but apropos third parties.  Members do have the same rights as shareholders to claim for unfair prejudice if the LLP is being conducted in a manner unfairly prejudicial.  However, many LLP agreements expressly exclude such rights and a member is therefore left to resort to the agreement and the Act and its regulations to seek redress.

If the relationship between the members breaks down and cannot be repaired either informally or through the procedures set out in any written agreement (if there is one) then it is crucial that you should take early legal advice to determine from the start what position you as a member (especially a minority one) are in advance of taking action.  Often LLP agreements are drafted to ensure a deadlock situation between equal partners, which makes matters even more difficult.  Together with a lawyer, a strategy can be put in place to try to achieve the speediest and most economical resolution to a dispute (which may or may not involve purchasing or selling of one member’s share to others).

Rupert Farr, head of Litigation at Blake-Turner, has extensive experience in partnership disputes, both old-style partnerships and LLPs, in different areas of industry and business (including accountants, facilities management, digital payment companies, and others).  He would be happy to discuss any partnership dispute case which you have with an initial consultation being free of charge before a decision is made as to whether to go forward.

FAREWELL TO THE “SMASH AND GRAB”

FAREWELL TO THE “SMASH AND GRAB”

For those participants in the Construction Industry who have been living in a cave for the last 20 years, it may come as a surprise that legislation which took effect in 1998 and 2011 introduced a new payment regime with concepts such as “withholding notices” and “payless notices”.

The regime imposed stringent obligations on paying parties to issue within short periods of time after receipt of invoices a notification setting out any sum which was not to be paid and specifying the reasons why.

Many employers and main contractors have continued to be caught out by this payment regime with main contractors and subcontractors taking advantage of any default by the paying party to issue adjudication notices requiring payment due to the absence of the requisite notifications. The Technology and Construction Court have reviewed this previously and come to the conclusion that failure to issue the correct notice is in effect strict liability to make payment.

His Honour Judge Peter Coulson in the recent case of Grove Developments has taken a different stance. He is unable to support the opinion of previous colleagues and has given binding authority that the absence of a payment notice is not fatal and a paying party will be entitled to commence a counter-adjudication seeking a “true value” of the invoice or account in question.

This is not a time for complacency and employers and main contractors must continue to comply with the payment regime.

However, in the event of default this case does allow a paying party to at least issue a counter-adjudication to nullify the effect of the inevitable decision of any first adjudicator being asked to order payment for failure to comply.

To discuss this or any other construction law issues please contact Blake Turner at info@blaketurner.com or on 020 7952 6214.

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How to correctly conclude a claim by way of a consent order

How to correctly conclude a claim by way of a consent order

In the matter Spice and Anor –v- Tuli and Anor [2012] which was heard in the Court of Appeal, the Defendant appealed the decision that the Claimant was allowed to bring a claim by way of a consent order based on the same set of facts as a claim which they agreed to dismiss.

The case discusses the use of the words “withdrawn”, “dismissed” and “discontinued” when concluding cases by way of consent. The word “withdrawn” is not appropriate as there is no provision in the CPR for a claim to be withdrawn, only discontinued or dismissed.

Facts

Spicer and Anor originally bought proceedings for possession. The day before the final hearing the Defendant provided disclosure. As the Claimant needed more time to investigate this disclosure they agreed a Consent Order dismissing the proceedings. In agreeing the consent order the Claimant’s Solicitor made it clear they would be investigating the disclosure and its validity.

Two months after the Order was filed the Claimant filed new proceedings, including the original claim for possession. The Defendant sought to strike out the claim on the basis that the claim for possession was barred as a result of cause of action estoppel. In addition, they argued that the fresh action was an abuse of process.

The application was unsuccessful and the Claimant was allowed to bring the second claim. The Defendant appealed the decision.

Decision

At the appeal it was concluded that there was no abuse of process. First, it was in the public interest that the disclosure was investigated for validity and secondly that the Claimant’s Solicitors had made it clear they would not stop the investigation just because the claim had been dismissed by way of consent.

The Court of Appeal considered the principle of cause of action estoppel. Whilst the principle of estoppel relies on the principle that there is finality of litigation it was created as “judge-made law”. As Judges often avoid setting absolute limits to any rule the Court of Appeal could understand why, in previous cases, the principle had been applied with a degree of flexibility rather than using a rigid application.

The case of Ako v Rothschild Asset Management Limited [2002] was considered. This is an Employment Tribunal case in which Dyson LJ concluded that a withdrawal or judgment by consent invariably results in a cause of action or issue estoppel. It was concluded that if it is clear that a party withdrawing their claim is not intending to abandon it or any issue within it then they cannot be barred from raising the point in subsequent proceedings unless it would be an abuse of process.

Although the Ako case was an Employment Tribunal case, and therefore subject to different rules than the Courts, Lewison LJ applied the case outside of Tribunal proceedings.
The appeal was dismissed and the Claimant was allowed to bring their second claim.

Comments

As a Claimant, care needs to be taken when signing consent orders. If there is an intention to bring the claim again in the future then proceedings need to be discontinued and not dismissed. In addition, it should be made clear to the Defendant’s Solicitors that there is an intention to bring future proceedings based on the same claim.

As a Defendant, before signing consent orders the Claimant’s intentions need to be clear. Defendant’s need to be aware of the implications in relation to the possibility of future proceedings against them.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this please contact [ ] on: [ ] or [ ].

Employer pension contributions

Employer pension contributions count towards a week’s pay

Facts

In the Employment Appeal Tribunal (“EAT”) and in the matter of University of Sunderland (“University”) v Ms K Drossou, the University of Sunderland appealed against the finding that employer pension contributions are to be considered when calculating the claimant’s weekly pay.

Ms Drossou worked for the University and was dismissed as a result of an irretrievable breakdown in working relationships. Ms Drossou was considered to be the primary cause of the breakdown.  The employment tribunal found that she had been unfairly dismissed and ordered the University to reinstate her. The University did not comply with the order and the tribunal awarded compensation instead. The EAT departed from the usual practice of excluding pension payments in calculating the weekly wage on the basis that section 221(2) of the RTA 1996 does not state that the amount payable by the employer under the contract of employment has to be payable to the employee and remuneration in section 221(2) means a reward in return for services and pension contributions are no less a reward for service than basic pay. The University appealed this finding.

Decision

The appeal was dismissed. The EAT agreed with the tribunal with respect to the above reasons. The EAT drew the distinction between section 221(2) and section 27(1) of the RTA 1996. The latter specifies that the sums must be payable to the worker whereas those words are absent in section 221(2).

Comments

Pension payments have not been taken into consideration when calculating a claimant’s weekly wage on the basis that the payment is not received directly by the employee but paid into a pension fund. This decision has increased the potential value of a claimant’s weekly pay. This decision will be important for employers who pay a high employer contribution rate. It is yet to be seen whether there will be further litigation following this decision or whether the correctness of the EAT’s judgment will be challenged.

 

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

 

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

 

Statutory adjudication to the construction industry

The Housing Grants, Construction and Regeneration Act 1996

The Housing Grants, Construction and Regeneration Act 1996 introduced statutory adjudication to the construction industry in addition to contractual adjudication which already featured in a number of standard form contracts.

Statutory adjudication provides for a 28 days fast track dispute resolution procedure.

In the almost 20 years since adjudication has been available through this piece of legislation, Lewis Cohen has represented a number of claimants and respondents in the process dealing with a number of issues including final account disputes, claims for delay and disruption and claims for defective workmanship and negligent design.

Not only does Lewis have a breadth of knowledge from his experience in this field but he recently studied for two years on the RICS Diploma course and is now a qualified adjudicator.

Adjudication, by its nature, remains a private dispute resolution procedure unless the decision is taken to court for enforcement.

Lewis has experience in successfully enforcing adjudicator’s decisions in the Technology & Construction Court.

Given the fast track nature of adjudication, this requires a flexible response when defending claims and Lewis and his team are able to offer immediate advice and a rapid response when acting for both the claimant and the respondent.

 

Sexual and racial discrimination case

Sexual and racial discrimination case

Blake Turner Solicitors recently acted in a discrimination case for an employer who faced a claim of sexual and racial discrimination for an employee who had worked there for less than six weeks.

Despite obtaining a Deposit Order against the Claimant at an early stage in the proceedings (on the basis that the Claimant had low prospects of success), the Claimant decided to pursue the matter all the way to the full Tribunal hearing.

After one aborted hearing in August, the employer was successful in defeating all heads of the claim.  As the judgment was based on the same findings as the Deposit Order, the Claimant was deemed to have behaved unreasonably in continuing with the proceedings.

As a result we made an application on behalf of our client for a Costs Order against the Claimant.  Costs Orders in Tribunal proceedings are extremely rare and are very much the exception to the rule.  Indeed they are only obtained in 0.07% of cases.  We were successful in obtaining the Order after a day’s hearing before the same Tribunal which heard the case.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com