Australian administrators seeking to take advantage of landlord standstill periods amid COVID disruptions

Office skyscraper Reflection in the sunlight. Frankfurt, GermanySince late March 2020 there has been a steady stream of voluntary administrators seeking the assistance of the court to limit their personal liabilities under the Corporations Act (Cth) 2001 (Act) by pointing to the social and economic disruptions and restrictions caused by COVID-19. Administrators have always had the option of seeking the court’s assistance to extend periods within which they are required to make key decisions in respect of major assets (or liabilities) and thereby potentially incur personal liabilities and, to convene meetings, conduct and complete investigations and issue reports to creditors. However, in more recent times, they have sought court intervention on a more significant basis with the treatment of leases being one area of concern. Continue Reading

HMRC Crown Preference Restored From 1 December 2020 – what is the impact on lenders and UK corporates?

HMRC form with moneyThe Finance Act 2020 received Royal Assent today (22 July), confirming the anticipated but opposed intention to restore HMRC as a secondary preferential creditor on insolvency.

From 1 December 2020 HMRC’s claim will sit ahead of floating charge holders and unsecured creditors reducing the monies available for distribution to both when a corporate files for insolvency.

While HMRC’s claim is limited to claims for unpaid employer NIC, PAYE and VAT, those claims are often significant (particularly with additional COVID-19 support and deferrals), and despite calls from concerned parties to cap the claim by amount or time (or indeed scrap the proposal altogether) the Act does not do that.

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The New Insolvency Practice Direction – providing some much needed clarity for UK winding-up petitions?

Finance and debt. Close up of past due stamp on an overdue account with limited depth of field and selective focusThe Corporate Insolvency and Governance Act 2020 (the “Act”) came into force on 26th June 2020. Alongside the Act, a new Insolvency Practice Direction (“IPD”) came into force and provides additional information in respect of winding petitions and the “coronavirus test”. This blog will look at a few of the key changes contained in the IPD.

The temporary measures in relation to winding up petitions contained in the Act, essentially made a creditor’s ability to wind up a company more difficult (as outlined in our earlier blog). The procedural requirements in the IPD further reinforce this and create multiple filtering methods before a petition can proceed.

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UK Tax Implications on Business Restructurings

British cashAs the government slowly ‘unlocks’ the British economy, and activity adapts to the new normal alongside coronavirus, the hope must be that latent consumer demand triggers a rapid, equally dramatic, recovery in GDP and jobs, allowing businesses to boost cash-flow and repay debt. An economic recovery of this nature (the sharper the point of the ‘V’, the better) would allow the gradual withdrawal of governmental support (e.g. from 1 August 2020, employers will be asked to contribute towards the cost of furloughed employees’ wages under the Coronavirus Job Retention Scheme (CJRS), and the scheme is due to close entirely on 31 October 2020) without occasioning further disruption.

However, considering the magnitude of government intervention that has been required and the scale of the downturn in the underlying economy, the risk must be that without this critical support, businesses that are already distressed, and possibly now very highly leveraged, will be exposed to an economic climate in which they will struggle to maintain cash-flow at a level necessary to continue as a going concern. The more the ‘V’ of the recovery starts to look like a ‘U’ (or, even worse, an ‘L’), the greater the pressure. Unfortunately, early data suggest that the withdrawal of government support will indeed occasion additional distress and business failure.

Debt restructuring, and ultimately formal insolvency might be the only options for distressed companies but understandably, taxation isn’t necessarily at the forefront of business thinking at such times.  However the tax implications (for borrowers, lenders and guarantors) arising from business restructuring proceedings should not be underestimated. Attempts to improve a company’s cash-flow position through debt restructuring can inadvertently trigger tax liabilities which, obviously, undermine the efficacy of such moves. The taxation of corporate debt in the UK is set out in the loan relationships regime. In broad terms, the tax will follow the accounting treatment.  Please see our alert that summarises some of the key tax issues for debtor companies to keep in mind. Different, and (in certain circumstances more complex) rules apply to creditor and guarantor companies.

 

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