Solvency Issues - what you need to know as a director Have you - - PowerPoint PPT Presentation

Covid Contracts and Corporate Solvency Issues - what you need to know as a director

Dispute Resolution Webinar

Have you tried to withdraw,

• r are you considering

withdrawing, from a contract as a direct consequence of COVID-19?

Poll

Has another party tried to withdraw from a contract with you as a direct consequence of COVID-19

Poll

Content

• 1. A look at Government Guidance on dealing

contractual obligations

• 2. Our recommendations for safely navigating contract

disputes

• 3. Withdrawing from a Contract: termination, Force

Majeure and other considerations

• 4. Attempts to withdraw from a contract – some case

studies (e.g. Cineplex -v- Cineworld)

• 5. Your liability as a director under the new Corporate

Insolvency and Governance Bill. Beware the Company Directors Disqualification Act and personal liability of directors

Government Guidance on dealing with contractual

• bligations

J R Compton, LLB, LLM, Solicitor, Barrister, Member Hon Soc Gray’s Inn, MCIArb

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• First guidance given by Cabinet Office and Infrastructure and Projects Authority 7 May

2020

• Second Guidance/ updated 1st July 2020
• In summary, the Government is strongly encouraging all individuals, businesses

(including funders) and public authorities to act responsibly and fairly in the national interest in performing and enforcing their contracts, to support the response to Covid-19 and to protect jobs and the economy

• The guidance is not statutory
• The guidance does not override the contractual provisions
• It is not intended to override specific contracts whose primary purpose is to make

express and clear provision for, and allocate risks in respect of, the effects of global or national public health emergencies or pandemics, especially contracts of insurance, although the Government would encourage responsible and fair behaviour where possible

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1.

Requesting and giving relief for impaired performance

• Time of delivery – extension of time, alternative delivery methods
• Payment terms – late payment, reduced payment, increased costs of delivery
• What goods can and cannot be delivered – alternative and/or substitute goods

2.

Remedies

• Reduced claims for damages
• Return of deposits
• Court remedies discouraged in favour of mediation

Incidents of responsible and fair behaviour

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3.

Variations

• Changes in pricing
• Changes in timings scope of works or
• Goods
• But the guidance only applies where the contract is materially affected by C19 – not otherwise
• The Construction Leadership Council is expected to offer further guidance

Incidents of responsible and fair behaviour (2)

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1.

Contracts effected by C19 and

2.

Contracts where specific provision is lacking to deal with such an emergency

• The guidance is not statutory and the courts will not use the guidance to alter a contract
• r a remedy
• Subject to…. the Corporate Insolvency and Governance Act….

The Guidance is limited to

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Our recommendations for safely navigating contract disputes

Robert Ganpatsingh

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• Know your contracts before disputes arise
• Don’t take hasty action; carefully consider your options before taking

irreversible steps

• Get advice before you act
• Work collaboratively with your commercial partners
• Take heed of the Government guidance on contractual obligations
• Be prepared to quote it

Recomendations

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Terminating a Contract: termination, Force Majeure and

• ther considerations

Robert Ganpatsingh

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• The wording of the contract
• The events giving rise to an alleged right to terminate
• Has there been a breach by either party?
• Has any breach been waived?

Terminating a contract – key factors

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• No longer convenient – e.g. contract no longer profitable
• Minor breach
• Material, substantial, or repeated breaches
• Repudiatory breach
• Insolvency With effect from 26 June 2020, it has become difficult or impossible for a supplier to terminate many contracts for the

supply of goods and services on grounds that the customer has entered a formal insolvency procedure (or even on other, pre-existing grounds), under the Corporate Insolvency and Governance Act 2020.

• Death or incapacity

Can you terminate in these instances?

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• Dissolution
• Change of control of one of the parties
• Covid-19 – Force Majeure & Frustration

Can you terminate in these instances? (2)

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Attempts to withdraw from a contract – some cases studies (e.g. Cineplex -v- Cineworld)

Robert Ganpatsingh

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• In December 2019 Cineworld announced it had agreed

$2.1bn takeover of Cineplex

• Cineworld terminated the agreement citing:
• Material Adverse Change
• Certain unremedied breaches of contract
• Cineplex is claiming $1.1billion damages and alleges

Cineworld has buyers remorse

Cineplex -v- Cineworld

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• Company X Entered into a three year IT managed services

agreement

• Express termination provisions only allow for termination in

the event of :

• Breach that is not remedied within 14 days
• Insolvency of other party
• There is no force majeure clause
• Company X has no revenue as a result of Covid-19 and

wants to get out of the agreement

The Holiday Company

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• Company must look closely at wording of the contract and

consider:

• Have there been any unremedied breaches of the

agreement

• If the IT company has had an insolvency event – a

CVA may be sufficient

• If no grounds for terminating on express terms:
• Consider frustration – unlikely to work on these facts
• Discuss with IT company and seek an agreed
• utcome

The Holiday Company

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Your liability as a director under the new Corporate Insolvency and Governance Bill

J R Compton, LLB, LLM, Solicitor, Barrister, Member Hon Soc Gray’s Inn, MCIArb

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• Royal Assent 26.06.2020
• The most far reaching reform in recent years
• In the first part of our discussions we saw how the UKGOV guidance will not alter the

remedies available to contracting parties

• The CIGA completely changes the field

Corporate Insolvency and Governance Act

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• Winding up petitions are out. No Corporate insolvency proceedings until 30.09.2020
• The cause of the Insolvency must be Covid related. CIGA SCH 10
• Instead a company can apply for a new ‘Moratorium’ with similar protections to the US

CHAPTER XI

• 20 business days
• Plus 20 business days (but Directors must confirm debts will be met)
• One year with consent of creditors

Winding Up Petitions and

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• All debts: Rent, wages, commercial debts are restricted according to the terms of the

moratorium

• In effect, a payment holiday during the period
• Monitor appointed
• CIGA 2020 Chapter 4

Winding Up Petitions

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• Insolvency Act 1986 as amended sections 214 to 246ZB provide that a delinquent director

can be forced to make a contribution to the assets of an insolvent company to pay to creditors

• Suspended by CIGA for worsening trading conditions between 01.03.2020 and ending

30.09.2020

• Duties remain unaffected under Companies Act 2006 sections 171 et seq.
• Directors still required to act responsibly
• BUT BEWARE CDDA, section 15A, which still remains in force.

Directors Duties and Wrongful trading

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• The Moratorium
• The suspension of winding up petitions
• The suspension of IA1986 section 214 to 246ZB
• But basic duties on directors remain intact…
• And beware CDDA S15A……

Measures brought in to protect companies and Directors

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Jonathan Compton

Speakers

Dispute Resolution Webinar

Partner, Dispute Resolution 01483 467433 Jonathan.Compton@dmhstallard.com

Robert Ganpatsingh

Partner, Dispute Resolution 01293 605000 Robert.Ganpatsingh@dmhstallard.com