Evaluating the Evaluation Process for UK Connected Party Sales – One Year On

It has almost been 12 months since the Administration (Restrictions on Disposal etc to Connected Persons) Regulations 2021 came into force on 30 April 2021. The regulations require an administrator to obtain creditor approval or a report from an independent evaluator in advance of completing a “substantial disposal” of the company’s property to a connected party within the first eight weeks of the administration.

We produced the attached FAQ document in April 2021 to explain the key aspects of the regulations and answer key questions about the process.

Having completed a number of connected-party transactions since the regulations came into force, acting for either administrators or buyers, in our experience complying with the regulations has not presented a significant challenge in completing those transactions, although in practice we have found the following:

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(UK) Rent Arbitration – A Useful or Useless Tool?

Counting payments for homeOften with new legislation, we might introduce it with words such as ‘much anticipated’ or ‘welcome’, but the Commercial Rent (Coronavirus) Act 2022 is for many landlords and tenants, too late, or unnecessary, because deals have already been done in respect of unpaid COVID commercial rent payments.

The Act came into force on 24 March 2022 and provides a mechanism which allows either a landlord or a tenant to apply to an arbitrator to determine what should happen in relation to unpaid commercial rent that accrued during the pandemic when restrictions were in place that prevented businesses from opening.

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Will Contradictors Play an Important Role in Australian Litigation?

In the common law world, Australia is a global market leader in terms of intense litigation in class action and corporate collapse contexts. It is, therefore, not surprising that contradictors are becoming increasingly common in heavily contested litigation.

In our latest alert in our litigation funding series, we consider whether contradictors will have an important role to play in that litigation.

April Fools: Winding Up Petitions Set to Increase, Is this a Wind Up?

From  today (1 April), creditors can present a winding up petition without (a) having to give 21 days to the debtor company to make proposals to pay, and (b) being owed a debt(s) of £10,000.   Given that all temporary restrictions and processes have now ended, the ‘gloves are off’ when it comes to debt collection.

Although presenting a winding up petition incurs a hefty court fee, the effect (or even threat) of a winding up petition can elicit a swift payment to avoid the consequences that an outstanding petition can present to a debtor company, including

  • reputational impact,
  • director duty concerns – wrongful trading/misfeasance,
  • the company’s lender freezing its bank account(s),
  • the risk of making payments that can be clawed back if the company is wound up; and
  • ultimately a winding up order.

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The Effect of Sanctions on Supply Contracts

The impact of Russia Sanctions has, as we have seen in the US with the first Chapter 11 filing (see our previous blog) started to have an adverse impact on businesses that have connections with Russia.  The impact on supply chains, and the consequences for business remain at the forefront of discussions and in our latest Insight Dr. Christopher Eggers considers the effect of the conflict on German supply chain contracts, although many of the points he discusses are relevant more widely.

Sanctions Against Russia and Restrictions on Flow of Capital Lead to First Chapter 11 Filing in the United States and Will Likely Lead to More Filings

As the conflict in Ukraine enters its second month and the list of sanctions and restrictions imposed by the United States, the European Union and other countries increases to punish Russia, the effects of the sanctions will become more apparent and are expected to have profound and lasting effects on a large number of industries.  These sanctions and other restrictions on the flow of capital will also have a long-term impact on Russian investments all over the world, as sanctions are placed on a large number of Russian financial institutions, companies, as well as certain Russian citizens close to Putin’s regime.  The recent filing of the chapter 11 case of the New York-based company Buyk Corp. (Buyk) is a case on point.

On March 17, 2022, Buyk, a mobile app grocery delivery service operating in New York and Chicago, filed for bankruptcy protection in the Bankruptcy Court for the Southern District of New York.  Buyk launched its delivery services in Manhattan in September 2021 and in Chicago in November 2021, with the promise of delivering groceries to consumers within 15 minutes.  Its business model used local delivery-only dark stores located around different neighborhoods to ensure delivery within minutes of an order.  This business model was not new and numerous ultra-fast delivery firms already existed in the New York market – as well as in other major metropolitan areas in the United States – when Buyk launched, with new entrants regularly entering similar markets.  Buyk, however, was a well-funded start-up since its inception.

Buyk was founded by Rodion Shishkov and Viacheslav Bocharov, both Russian citizens who each owned 46.55% of Buyk’s shares.  According to press reports, these founders also partially owned a Russian fast-grocery store called “Samokat,” one of the largest instant grocery-delivery companies in Russia.  Buyk raised $46 million in seed funding for its launch in the United States and, as of the petition date, the Russian-based investors had provided total seed funding of $63.5 million in convertible notes and $11 million in unsecured loans.  Prior to its bankruptcy filing, Buyk had 39 stores in the New York and the Chicago metropolitan areas and was planning to open another 100 stores in 2022.  Buyk had relied on cash infusions by its founders to operate and fund its expected expansion and was in the process of a planned equity raise when the conflict in Ukraine began.  Specifically, Buyk was seeking new equity funding in the amount of $250 million, including from its founders.  However, with tensions mounting between Russia and Ukraine, Buyk pivoted to seek an equity raise from investors in the United States, including from numerous institutional investors and potential strategic partners, such as DoorDash.  When the hostilities began, according to the pleadings filed in its bankruptcy case, Buyk was “confronted with an existential and, ultimately, fatal crisis” and “any chance of obtaining equity or debt investment from the prominent institutional investors which had been interested in funding the Debtor was now lost.”

In a matter of days, after the company’s access to funding was abruptly restricted, Buyk had no choice but to permanently shut down its operations and lay off approximately 900 employees.  Buyk’s management explained that “as a result of the Ukrainian crisis and the Debtor’s attendant inability to receive funding from its initial investors and/or any other parties in a sufficient amount to continue to operate as a going concern while seeking a comprehensive capital raise or a merger or sale transaction, the Debtor’s fiduciaries determined to cause the Debtor to commence this Chapter 11 case in order to effectuate an orderly sale of its assets.”  The company is now in the process of selling its assets, including its perishable inventory, and seeks to run a compressed sale process within 60 days and to ultimately file a plan of liquidation.  It also sought approval of $6.5 million in DIP financing, to pay employees’ salaries and repay a prepetition bridge loan in the amount of $4 million.

While Buyk was funded by Russian-based investors, it bears noting that while the investors were not themselves sanctioned individuals, they were not able to transfer funds out of Russia, according to the company.  When Buyk tried to pivot to raise equity funding in the United States, any possible investments by institutional investors failed to materialize after the hostilities in Ukraine began.  Thus, even if the Russian funders were not themselves sanctioned individuals, the Ukraine crisis cut off both internal and external funding opportunities and led to Buyk’s precipitous collapse.

While the full effect and scope of the sanctions and restrictions imposed on Russia remains unknown at this point in time, there is little doubt that a large number of companies in numerous sectors with ties to Russia or Russian investors will start to feel the sting of the sanctions and restrictions, with sometimes abrupt and swift negative consequences.  The Buyk chapter 11 case is likely just the first, but not the last, chapter 11 case to be filed by Russian-affiliated companies as a direct result of the conflict in Ukraine and the resulting sanctions.

(UK) In What Circumstances Can Directors be Personally Liable for Company Taxes?

British cashA lot is said about directors’ duties – ensuring that they are complied with to avoid potential claims resulting in personal liability – and that remains the case. However, as officers of a limited liability company, directors should also be aware of the circumstances in which they could be personally liable for the company’s tax debts.

Our new quick guide sets out the main circumstances in which directors and other officers can be held to be personally liable for company tax.

What Are UK Finance Seeing in terms of Business Recovery and Lender Support?

In the final video, as part of our business recovery and resilience series, Aysha Fernandes (Commercial Finance Director at UK Finance), gives us some insight into what UK Finance expect to see during 2022 in terms of business recovery and lender support. To listen to Aysha’s answer click here.

All other videos in this series can be accessed via our previous blog post.

 

What is the Impact of Recent Policy Changes on a Lender’s Appetite to Lend and UK Business Recovery?

As part of our business recovery and resilience series, our fourth video from Aysha Fernandes (Commercial Finance Director at UK Finance), answers this question as well as commenting on what trends UK Finance have been seeing as we start to come through the pandemic.  To listen to Aysha’s answer click here.

Our previous video answering How should UK companies approach HMRC for support? can be accessed here, as well as our videos answering As we are coming out of the COVID crisis, what should directors be thinking about? and There hasn’t been a wave of insolvencies, is business stress still there or are we through the worst of it? which can be accessed through our previous blog.

Webinar Recording: The Conflict in Ukraine – Impact on Capitals, Markets and Boardrooms

On Tuesday, March 22, 2022, Squire Patton Boggs and the American Bankruptcy Institute hosted a webinar titled “The Conflict in Ukraine:  Impact on Capitals, Markets and Boardrooms.”  The webinar featured a distinguished panel of Squire Patton Boggs professionals, including former Speaker of the US House of Representatives John Boehner, Career Ambassador Frank Wisner, Ambassador Matthew Kirk, Patrick Brooks, José María Viñals, and Ludmilla Kasulke, and leading energy industry expert Kate Dourian, a non-resident fellow of the Arab Gulf States Institute. The panel was moderated by Stephen Lerner, Global Chair of Squire’s Restructuring & Insolvency Practice Group.

The discussion focused on the geo-political, legal and economic repercussions of the crisis in Ukraine.  Our panelists provided timely and insightful commentary and advice on:

  • the current situation on the ground in Ukraine;
  • the impact on NATO and potential membership for Ukraine;
  • the impact on US relations with China;
  • how the Ukraine conflict differs from previous recent military conflicts;
  • the current sanctions landscape and how to navigate the various sanctions imposed by the US, UK and EU;
  • the global economic impact;
  • how C-Suite executives and directors are addressing the myriad business issues and challenges caused by the conflict; and
  • the impact on the ability of non-Russian investors and creditors to recover on debt and equity investments in Russian companies.

A recording of this webinar is available.

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