The Insolvency Service has released statistics on the level of insolvencies in April 2020. This allows us to take a look at the immediate effect of insolvencies post-lockdown compared with those before.
New Legislation Provides Support to the Health Care Sector in Germany
On May 15, 2020 the German Bundesrat approved the Second Law for the Protection of the Population in the Event of an Epidemic Situation of National Significance.
The law contains numerous legal amendments and regulatory powers to deal with the COVID-19 epidemic such as preventative testing and the care bonus to ensure the functioning of the public health system in an epidemiological emergency and to mitigate the negative financial consequences of this special situation in the health care sector. See our alert for further discussion about the new law.
Top 10 Employment and Employee Benefit Issues in US Bankruptcy Cases
Bankruptcy is a term that tends to instill images of “For Sale” or “Everything Must Go” signs posted in windows, but this often is not the case. In fact, a bankruptcy filing is one way for a business to refocus its efforts and reorganize. Indeed, throughout history, many Fortune 500 companies have at some point filed for bankruptcy, successfully reorganized and prospered. For this reason, a good bankruptcy lawyer approaches the process as a surgeon with a scalpel (rather than a sledge hammer). A company that files Chapter 11 bankruptcy will, in most cases, be a “debtor-in-possession,” and its management and board will retain control of the company so it can continue to conduct business during the pendency of its reorganization.
In order to assist employers in understanding some of the bankruptcy nuances, we have prepared this alert, which can also be found on our website, identifying some of the most important employment and employee benefit issues in US bankruptcy cases.
Covid-19: CBILS and CLBILS – How Many More Hurdles for UK Private Equity?
On Tuesday, the Government announced new statistics showing that as at 10 May over £14 billion in loans and guarantees have been approved across the new Bounce Back Loan scheme, the Coronavirus Business Interruption Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS). This significant amount of Government support to British business, revealed another interesting statistic: CLBILS accounts for just £359 million of that total. Just 16% of all applications under that scheme had been approved. This compares to 50% of CBILS applications and 74% of Bounce Back Loan applications.
We’re in this together?
One constituency that will not be swelling the numbers with approved applications is private equity portfolio companies. They have not had an easy time accessing CBILS or CLBILS since inception of the schemes. First, there was the aggregation question. The launch of CBILS on 23 March was soon followed by uncertainty around whether or not the annual turnover of all private equity portfolio companies under common ownership and control should be aggregated for the purposes of determining whether or not the maximum turnover threshold for CBILS beneficiaries of £45 million was exceeded. The initial position of lenders accredited to CBILS was to assume the principle did apply. As a result, all but a tiny proportion of private equity portfolio companies which would have qualified for consideration were excluded. Accredited lenders sought clarification from the Government. Parallels were drawn with the position in the US under the Coronavirus Aid, Relief, and Economic Security Act launched in 27 March where the Paycheck Protection Program adopted the Small Business Administration “affiliation” rules with a similar effect on private equity portfolio companies.
UPDATED: How to Access European and Middle Eastern Governments’ Financial Support Packages
We have updated our European Government Financial Support guide, which sets out what financial support businesses in different jurisdictions could access to help manage financial distress caused by Covid-19. We have updated this with new details for the Czech Republic, EU, France, Germany, Italy, Spain, UK and UEA. To access the updated guide – click here.
UPDATED Global Insolvency Report: Impact of Covid-19 on Insolvency Laws
As different countries respond in different ways to meet the challenges placed on businesses and the economy. Our guide sets out how different jurisdictions are changing their Insolvency Laws to help alleviate additional pressures placed on businesses as a consequence of cash flow pressures caused by COVID-19.
We have updated our guide to include further changes to insolvency laws in Poland, Japan and Russia.
To Resolve The Impasse Created By The Karlsruhe Court’s ECB Judgment You Need To Address What The Court Has Actually Done
Our client alert dated 5 May explored some implications of the German Federal Constitutional Court’s decision the same day to prohibit the Bundesbank from participating in the European Central Bank’s (ECB) Public Sector Asset Purchase Programme (PSPP). A great deal of reaction and commentary since has focused on whether the Federal Constitutional Court’s admittedly very direct dismissal of the European Court of Justice (ECJ) Judgment of 11 December 2018 on the legitimacy of the PSPP was out of order. The President of the European Commission and the ECJ itself have been at the forefront of the reaction.
EU Commission Authorises State ‘Recapitalisation’ Measures To Support Failing Businesses Due To COVID-19
Last Friday (8 May 2020) the EU Commission issued a new communication setting out the conditions under which EU Member States can inject capital in companies in need (the “Recapitalisation Measures”).
This announcemen
t constitutes the 2nd Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (which we reported here (“Temporary Framework”) and here (“1st Amendment”) and aims to avoid insolvencies in mass of what would have been, absent COVID-19, viable businesses.
This scheme is however not open to companies which were already “in difficulty” on 31 December 2019 (covering companies “where more than half of [their] subscribed share capital has disappeared as a result of accumulated losses”) and therefore does not apply to (1) private equity-backed start-ups which are not yet making a profit and (2) business relying predominantly on equity or long-term debt financing to operate.
The announced Recapitalisation Measures include:
- Equity instruments such as the issuance of new common or preferred shares;
- Hybrid capital instruments such as profit participation rights, silent participations and convertible secured or unsecured bonds; or
- Any variation of the above instruments, or a combination of equity and hybrid capital instruments.
Life After Lockdown: Preparing and Shaping UK Businesses
After 2 months of lockdown last Sunday the UK Prime Minister announced the conditional plan to get employees who cannot work from home back into the workplace and the framework within which the we may take tentative steps to increase societal connections.
On Monday the UK Government published its 60-page Covid-19 Recovery Strategy dealing with how the UK might move from present lockdown to the “ New Normal”.
And on Tuesday there was more from the UK Chancellor addressing ongoing financial support.
Obviously the ability to begin rejuvenating businesses that have been mothballed for the past couple of months is good news but corporates should proceed with caution as they take steps to revamp the workplace.
The Statistics Paint A Bleak Future For UK Businesses
As the world remains in lockdown, the Coronavirus pandemic continues to affect almost every business, impacting profits, customer interaction and ultimately threatening the survival of many businesses.
New studies have begun to show the impact of the national lockdown on the UK’s business community. The Opinium-Cebr Business Distress Tracker (the “Tracker”), created by the Centre for Economics and Business Research (“Cebr”), surveys 500 business across the country, representing a broad range of industries and business sizes. As firms grapple with the unprecedented challenges brought about by the coronavirus crisis, these results shed some light on what the future may look like.
Business insolvency risk
The Tracker has found that more than half a million (591,000) UK businesses have been pushed to the brink as a result of the coronavirus crisis, with 1 in 10 saying that there is a high risk they will enter insolvency.
Just 2 in 5 (41%) of businesses feel that they are safe from insolvency as a result of the coronavirus-related disruption. Meanwhile, the remaining 51% say that there is a high (10%), moderate (15%) or small (26%) risk that they will enter insolvency as a result of the crisis. This equates to 2.9 million businesses across the country.
The statistics from the survey uncover a bigger problem. More than a quarter of a million businesses confirmed that they will be unable to survive if trading conditions continue for another month, while more than 1.1 million firms could collapse if lockdown continues for more than three months.
The economic carnage that a second wave of infections would bring would crush those businesses who have just about survived the first wave. During the first month of the national lockdown, businesses profits were down by an average of 29% and, among those businesses with 1-9 employees, profits were down by 35%. There is no doubt that any substantial extension of the lockdown, will have a catastrophic impact on the business community.
Employment impact
In order to survive the current economic crisis and save jobs, many businesses have adjusted their daily practice and have taken advantage of government support schemes, such as the Coronavirus Job Retention Scheme. On average, businesses have placed 35% of their employees on furlough. This average is slightly higher (45%) for smaller businesses with 10-49 employees. Today’s news of the extension of the JRS to October will be very welcome across the economy and form an integral part of future plans for businesses.
In addition to furloughing, many other decisions have been made to reduce the financial burden on businesses and more importantly, reduce the likelihood of having to make redundancies. For example, on average 32% of employees have seen a reduction in their working hours and a similar proportion (33%) have experienced wage cuts.
The British Chambers of Commerce Coronavirus Business Impact Tracker (“CCBI Tracker”) found that number of firms accessing the government’s Job Retention Scheme remains consistent with previous weeks, with around 74% of respondents furloughing a portion of their staff. Current reports shows that 59% of those who have submitted a JRS claim have received payment from HMRC and no firms have reported being rejected yet.
Economic Recovery
In last Sunday night’s speech, Boris Johnson attempted to set out the UK’s “road map” for ending the coronavirus lockdown. In an effort to get the UK economy get back on its feet, Johnson laid out his three stage plan, with the first stage being that employees who cannot work from home should be “actively encouraged” to go back to work. As highlighted in our previous blogs, the manufacturing and construction sectors have been one of the worst affected by the lockdown and have the second highest number of employees on furlough. This initial easing of the lockdown hugely benefits these sectors as it allows their employees to return to sites.
A concerningly high level of businesses feel that they will not be able to bounce back to full activity after lockdown. On average, businesses say they will need 6 months to return production to pre-crisis levels. The CBBI Tracker found that smaller businesses may be faster in restarting operations. Almost two-thirds (64%) of respondents employing fewer than 10 people said they would need less than one weeks’ notice to restart, compared to half (50%) of respondents with more than 50 employees.
This initial recovery however, is overshadowed by the widespread, long-term and severe level of disruption for businesses. In light of the Tracker’s results, Cebr forecasts that the UK GDP will remain below its 2019 level until 2022. James Endersby, Chief Executive at Opinium said “The damage inflicted on UK businesses by the pandemic and lockdown is colossal, and the figures make for very sombre reading. The business impact is felt in almost every region, every sector, across every business size and at almost every level of employment. It’s unavoidable.”
