Prepare for a no deal Brexit or prepare to fail? Practical steps for UK businesses

Prime Minister Boris Johnson promises that the UK will leave the EU on 31 October with “no ifs or buts”. With three months left until the UK is due to leave the EU, the Prime Minister states that he hopes to negotiate a better deal, but concern remains that the UK will leave the EU with no deal. Are UK businesses prepared for that? The majority are not.

The Confederation of British Industry (“CBI”) has recently published a report setting out practical steps that UK businesses can take to reduce the harm of a no deal Brexit.

We look at the issues businesses face, why they need to prepare and what steps they can take. The consequences of failing to prepare may see many businesses in many different industries struggling and in financial distress.

The CBI reports that whilst businesses have already spent billions preparing, the business community, smaller businesses in particular are not ready for no deal.

With 4 out of 10 SMEs that trade internationally having no contingency plans, and thousands of small companies unable to divert resources to prepare, the impact of no a deal Brexit may, in the short term at least, see UK businesses under intense financial pressure.

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Cryptocurrencies: practical considerations in insolvencies

In a recent report by INSOL International, only 5% of insolvency practitioners (“IPs”) said that they had a “comprehensive or practical/working or understanding” of crypto-currency.

So with over 4,000 types of cryptocurrency now available and as payment technology continues to develop, we look at some issues facing IPs, including

    • How to identify cryptocurrency
    • How to categorise it
    • How to take control of it and sell it; and
    • What value does it have

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Green Finance: is your business ready? Future challenge or opportunity?

We recently commented on the Government’s Clean Air Strategy raising awareness of the potential impact on a wide range of businesses if they failed to plan ahead to ensure compliance.

Hot on the heels of this follows the Government’s Green Finance Strategy, launched on 2 July 2019.

This strategy, together with the Clean Air Strategy and other policies whose objective is to take the UK towards carbon neutral targets by 2050, may present significant challenges for many companies, particularly if they fail to plan ahead.

Businesses will have to consider the impact on the environment of business decisions, whether finance will be available to meet their business needs and the impact on the company’s financial position if asset valuations are affected.

The earlier companies start to consider how these changes may impact their business and how to address compliance; the best chance they have to survive, and for some, take an early opportunity to prosper.

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The Government fails to listen to lenders as it presses on with reforms which may stifle UK enterprise

 

We reported last week that the Government intends to proceed with its proposal to reinstate HMRC as a preferential creditor on insolvency, which could spell disaster for UK businesses, lenders and the UK economy.

The Government has failed to listen to lenders and others who responded to the Government’s consultation about the impact of its proposed changes to HMRC’s status as a creditor in insolvencies.

Squire Patton Boggs hosted a roundtable discussion in May with R3 and representatives from all corners of the lending and restructuring market. The industry as a whole was fiercely opposed to the proposal.

We know that arguments against the proposal, and the concerns and issues of lenders were relayed to HMRC. We also know that respondents to the Government consultation articulated those concerns in their responses, Squire Patton Boggs included.

The message to the government was clear, if HMRC is restored as a preferential creditor this will affect existing lending, this will affect new investment, this will affect business growth and this will affect the UK economy.   Have these been messages been taken seriously? It appears not.

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Draft Finance Bill published: HMRC preferential status on insolvency confirmed

Today the Government published draft provisions for inclusion in the Finance Bill which will amend the Insolvency Act 1986 and grant HMRC preferential status on insolvency. A status that was removed in 2003 but which will be re-instated (in part) from 6 April 2020.

Despite huge concern from the lending market, voiced in responses to the Government’s consultation on this measure, the only material change we can see is confirmation that preferential status will not apply to insolvency proceedings commenced before 6 April 2020.

Unfortunately for businesses and lenders, this does not address real concern about the impact of this change on existing facilities and future lending.

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Dubai Makes Moves Toward International Best Practices with New Insolvency Law

On May 30, 2019, Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum, signed DIFC Insolvency Law, Law No. 1 of 2019 (the “New Insolvency Law”) into law, thereby repealing and replacing DIFC Law No. 3 of 2009.  The New Insolvency Law, and supporting regulations (the “Regulations”), became effective on June 13, 2019, and govern companies operating in the Dubai International Financial Centre (the “DIFC”).

A full analysis of the New Insolvency Law is beyond the scope of this post.  However, there are many important provisions of the New Insolvency Law that will be very familiar to U.S. bankruptcy practitioners, as well as cross-border practitioners.

Voluntary Arrangements

First, Part 2 of the New Insolvency Law provides procedures for creditors and shareholders to agree to a voluntary arrangement of a company’s affairs.  The procedure for implementation of a proposed voluntary arrangement is relatively straightforward.  The proposal is considered at two meetings: (1) a meeting of the company’s creditors; and (2) a meeting of the company’s shareholders.  See Article 10(1).[1]  If the proposed arrangement is approved by both constituencies, no court involvement is required and the approved voluntary arrangement is binding on all creditors and shareholders.  See Article 11.

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Clean Air: is your business ready?

There in an increasing focus on emissions and pollution through various regulations and initiatives.

You may have seen coverage of, or taken part in activities for “Clean Air Day” on 20 June 2019, a campaign to grow awareness about air pollution. Clean Air legislation has of course been around for a number of decades, with statutory provision initially aimed at issues like smog, burning of fossil fuels, and dark smoke.

The Government set out its Clean Air Strategy earlier in the year and further legislation is likely to follow. The plans referred to in the 2019 strategy include reducing emissions from vehicles and introducing clean air zones (some of which are already in operation), reducing deposits of reactive forms on nitrogen, reducing ammonia emissions (impacting the farming industry), tighter emissions standards in industry and reducing emissions in the home.

As restructuring and insolvency lawyers, we are only too aware of the impact of a business not planning ahead and focusing on the immediate issues and challenges they face daily.

But as those who are involved in imports and exports have had to plan for Brexit, those businesses who stand to be affected by these changes must plan appropriately too. Many businesses will be affected in some way, if not already, and we touch on some the implications below:

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It Should Be Settled Law – Unsecured Attorney’s Fees Claims Are Permissible

In Travelers Cas. & Sur. Co. of Am. v. PG&E, 549 U.S. 443 (2007), the Supreme Court held that bankruptcy law does not disallow a post-petition unsecured claim for attorney’s fees to the extent such claim is authorized by a pre-petition contract and not otherwise expressly disallowed. That pronouncement should have stopped all future litigation over the issue. That has not been the case.

Recently, the Fourth Circuit confronted this very issue in SummitBridge Nat’l Invs. III, LLC v. Faison, 915 F.3d 288 (2019). The facts of SummitBridge are straightforward. The debtor, Faison, executed three promissory notes to his lender, which notes were secured by deeds of trust on the debtor’s real property. Faison commenced a bankruptcy case and the lender filed proofs of claim. The lender subsequently sold its interest in the promissory notes and claims to SummitBridge National Investments III, LLC. The debtor then proposed a plan which provided that SummitBridge’s claims would be allowed as secured claims in the amount of principal, interest, pre-petition attorney’s fees and a certain portion of the post-petition interest and attorney’s fees. The plan, however, precluded SummitBridge from recovering any post-petition attorney’s fees after it had received the value of the underlying collateral. Regardless, SummitBridge filed and pursued unsecured claims for post-petition attorney’s fees. The debtor’s objection to these claims was sustained by the bankruptcy court. The district court affirmed and SummitBridge appealed to the Fourth Circuit. Continue Reading

The changing landscape of retail CVAs – are landlords taking back control?

There has been an influx of company voluntary arrangements (“CVAs”) in recent times, as retailers fight to rescue their UK high street stores. Retail CVAs accounts for the highest proportion of CVAs at 19%. As more and more CVAs are approved, we consider some of the recent trends seen in the retail sector which showcase the flexibility of a CVA and reflect the demands of landlords whose support is vital to the continuing viability of a business.

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That Didn’t Take Long: Ninth Circuit’s Decision in Garvin v. Cook Invs. NW is Challenged

Marijuana Cannabis Leafs

As noted in prior posts, the Ninth Circuit opened the door, albeit narrowly, to cannabis company bankruptcies when it issued its opinion in Garvin v. Cook Invs. NW on May 2, 2019.  In Garvin, the Ninth Circuit affirmed the confirmation of a plan of reorganization proposed by the lessor to a marijuana growing operation.  The Ninth Court adopted a narrow interpretation of section 1129(a)(3)’s confirmation requirement that a plan be proposed “not by any means forbidden by law”, holding that this requirement applies only to the “means of a reorganization plan’s proposal, not its substantive provisions.”  The Court refused to consider the U.S. Trustee’s argument that the debtors’ plan should be dismissed “for cause” under section 1112(b) since the U.S. Trustee had failed to renew the dismissal motion prior to confirmation.

It did not take long before the Garvin Court was criticized for even partially opening the door to cannabis company bankruptcies.

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