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

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

Have you tried to withdraw, or 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 obligations J R Compton, LLB, LLM, Solicitor, Barrister, Member Hon Soc Gray’s Inn, MCIArb

6 Dispute Resolution Webinar  First guidance given by Cabinet Office and Infrastructure and Projects Authority 7 May 2020  Second Guidance/ updated 1 st 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

7 Dispute Resolution Webinar Incidents of responsible and fair behaviour 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

8 Dispute Resolution Webinar Incidents of responsible and fair behaviour (2) 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

9 Dispute Resolution Webinar The Guidance is limited to 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 or a remedy  Subject to…. the Corporate Insolvency and Governance Act….

Our recommendations for safely navigating contract disputes Robert Ganpatsingh

11 Dispute Resolution Webinar Recomendations  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

Terminating a Contract: termination, Force Majeure and other considerations Robert Ganpatsingh

13 Dispute Resolution Webinar Terminating a contract – key factors  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?

14 Dispute Resolution Webinar Can you terminate in these instances?  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

15 Dispute Resolution Webinar Can you terminate in these instances? (2)  Dissolution  Change of control of one of the parties  Covid-19 – Force Majeure & Frustration

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

17 Dispute Resolution Webinar Cineplex -v- Cineworld  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

18 Dispute Resolution Webinar The Holiday Company  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

19 Dispute Resolution Webinar The Holiday Company  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 outcome

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

21 Dispute Resolution Webinar Corporate Insolvency and Governance Act  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

22 Dispute Resolution Webinar Winding Up Petitions and  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

23 Dispute Resolution Webinar Winding Up Petitions  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

24 Dispute Resolution Webinar Directors Duties and Wrongful trading  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.

25 Dispute Resolution Webinar Measures brought in to protect companies and Directors  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……

26 Dispute Resolution Webinar Speakers Jonathan Compton Robert Ganpatsingh Partner, Dispute Resolution Partner, Dispute Resolution 01483 467433 01293 605000 Robert.Ganpatsingh@dmhstallard.com Jonathan.Compton@dmhstallard.com