New Corporate insolvency and governance bill
The government has recently introduced a new Corporate Insolvency and Governance Bill, which has now passed its first and second readings, and the committee stages, and moved to the House of Lords for consideration. The bill introduces a number of temporary measures in response to the COVID-19 pandemic, as well as new permanent reforms of the UK insolvency regime.
Importantly, the bill has introduced two new measures to reduce the threat of winding up petitions and statutory demands to companies during the COVID-19 period.
The first temporary measure prevents a creditor from presenting a petition for the winding up of a company on the basis of its inability to pay debts during the COVID-19 period unless the petitioner has reasonable grounds for believing that COVID-19 has not had a financial effect on the company, or that the ground for winding up would have applied even if COVID-19 had not had a financial effect on the company. This provision has retrospective effect from 27 April 2020 and will apply until the later of 30 June 2020 or one month after the bill coming into force.
The second temporary measure prevents the use of a statutory demand as a basis for issuing a winding-up petition against a company. The provision applies to all statutory demands served between 1 March 2020 and 30 June 2020 (or one month after the coming into force of the bill, if later) and prevents them from forming the basis of a winding-up petition presented after 27 April 2020.
There are also provisions to rectify the situations where a petition has been brought, or a winding-up order made, prior to the enactment of the new measures.
For further information, please read the note produced by our Restructuring and Insolvency team on the bill here.
Civil Justice Council report on impact on court system
Since the start of the COVID-19 pandemic, a huge number of changes have been made to the court system in this jurisdiction in an incredibly short space of time. A large number of civil hearings are now proceeding remotely, and new temporary rules and guidance have been brought in to facilitate this, including a new temporary Practice Direction enabling proceedings to be held in private or with a single journalist in attendance where access by the general public cannot be secured.
Given the speed of the changes, the Civil Justice Council has recently conducted a rapid consultation on them, and published its finding in this report.
The report essentially concludes that, for complex commercial litigation in the High Court, where the parties tend to be sophisticated, legally represented and to have deeper pockets, remote proceedings are working very well, and the flexibility they afford is enhancing the already strong reputation of our civil justice system internationally. Many participants hope that elements of them will be retained in a post-COVID world.
In the lower courts, however, where the volume of cases is much higher and there are many litigants in person, remote hearings have been much less successful, and a worrying backlog of postponed cases appears to be building up.
To read more on this topic, see this article by Lauren Clark-Hughes and this article by Imogen Nolan, both Associates in our team.
Impact on commercial contracts
Many predict a wave of litigation arising out of the current pandemic, as COVID-19 prevents parties from fulfilling their contractual obligations. The tools that the English courts have historically used to allocate risk between contractual counterparties in such situations – the doctrines of frustration and force majeure – are generally considered to be relatively inflexible and to result in a "winner takes all" outcome for one party or the other.
Since the pandemic started, jurisdictions across the globe have therefore been considering whether there are any measures that can be taken, temporary or otherwise, to ameliorate the situation and head off the predicted wave of disputes. In some, such as Singapore, the outcome has been legislation imposing a temporary moratorium on claims. Here, however, the government has taken a softer approach, and has simply issued non-binding Cabinet Office guidance to contractual counterparties urging them to behave fairly and responsibly in respect of COVID-19 related disputes, and to use ADR wherever possible, instead of the courts. It remains to be seen whether this more "softly softly" approach will, in reality, have any effect on parties' behaviour over the coming months.
The British Institute of International and Comparative Law has also published two concept notes, which consider how the English law doctrines of frustration, force majeure and unjust enrichment can be utilised in a more flexible manner in future in order to avoid unfair, "winner takes all" outcomes in contractual disputes. By way of example, one suggestion is that the English courts could imply terms into commercial contracts affording the parties "breathing space" (i.e. extra time) to perform their contractual obligations in light of the current situation. Given the English courts' long history of holding parties to their contractual bargain, and their historic reluctance to imply terms into contracts unless absolutely necessary, it remains to be seen whether they will be prepared to take these somewhat creative suggestions up, in order to ensure "fairer" outcomes for parties in the current, unprecedented circumstances.
To read more on this topic, see this article by our Commercial team, and this article by Andrew Pullar, an Associate in our team.
FCA brings test case regarding business interruption insurance
Many businesses are presently seeking to use their business interruption insurance to cover losses sustained as a result of COVID-19, and many insurers are, in response, taking a narrow view of the coverage such policies afford. We therefore expect this to be an area that generates significant litigation in the coming months.
Foreshadowing this, the FCA has recently brought a test case in the Financial List seeking clarity as to the way in which typical business interruption policies should be interpreted. It has identified 17 examples of policy wordings which it believes are broad enough to cover the vast majority of disputes which could arise in this area, issued by 16 different insurers.
Whilst the results of the test claim will only be legally binding on the insurers and in relation to the policy wordings directly involved in it, it is intended to provide guidance on the interpretation of similar wordings in other disputes in this area.
For further information, please see here.