DOCSLIB.ORG

Litigation Risk in the Post-Covid World: Steering the Ship on Stormy Seas by Natalie Todd and Clara Browne, PCB Byrne LLP

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Litigation Risk in the Post-Covid World: Steering the Ship on Stormy Seas by Natalie Todd and Clara Browne, PCB Byrne LLP Litigation risk in the post-Covid world: steering the ship on..., Practical Law UK... Litigation risk in the post-Covid world: steering the ship on stormy seas by Natalie Todd and Clara Browne, PCB Byrne LLP Articles | Published on 26-Aug-2021 | United Kingdom This feature article discusses how businesses that are in financial distress can manage the risks associated with litigation brought against them, as claims of all kinds are expected to rise in the wake of the COVID-19 pandemic. Speedread © 2021 Thomson Reuters. All rights reserved. 1 Litigation risk in the post-Covid world: steering the ship on..., Practical Law UK... Businesses that are facing financial distress in the wake of the COVID-19 pandemic need to manage the risks associated with litigation that could be brought against them. Directors must comply with the general duties owed to the company, as specified in sections 171 to 177 of the Companies Act 2006 (2006 Act). These include exercising independent judgment, acting to promote the success of the company, and exercising reasonable care, skill and diligence. Former directors also continue to be subject to duties under the 2006 Act. A director, past or present, may face personal claims against them for, among other things, negligence and breach of duty. These claims will be brought by an insolvency practitioner should the company become insolvent. The counterparties to the company’s transactions, including suppliers and possibly also purchasers, will be involved in their capacity as creditors. Claims for misrepresentations may be made by third parties against the company. Claims for fraudulent misrepresentation may be made by third parties or by the insolvency practitioner against the directors who will be personally liable for their fraudulent misrepresentations. Transactions that occurred when the company was insolvent or that led the company to become insolvent are open to challenge by the appointed insolvency practitioner. Directors could be liable for wrongful trading and be held personally liable to contribute to the company’s assets an amount equivalent to the losses suffered by creditors for continued trading. There is also the risk of fraudulent trading and being held liable to make whatever contributions, if any, to the company’s assets as the court thinks proper. Transactions at an undervalue and preferences could also be subject to challenge. Directors should keep careful records of their considerations and ultimate decisions. If a director has misapplied or retained or become accountable for any money or other property of the company or been guilty of a misfeasance or breach of fiduciary duty in relation to the company, the court may order the director to repay, restore or account for the money or property together with interest or contribute to the company’s assets by way of compensation. Significant arrears of directors’ expenses and remuneration should not be discharged while other creditors go unpaid. However, ongoing payments of remuneration and expenses to directors and general payroll to employees may be appropriate. Where a company proceeds into formal insolvency, the directors could be disqualified from acting as a director for up to 15 years. If there is any suggestion that a dividend could be in excess of available distributable profits, it may be unlawful and directors could be personally be liable to repay the company for any loss suffered. If redundancies are being contemplated, directors should consider furloughing employees, while the furlough scheme is still open. Directors must follow the © 2021 Thomson Reuters. All rights reserved. 2 Litigation risk in the post-Covid world: steering the ship on..., Practical Law UK... correct procedures in any redundancy process, for example as to collective consultation, to avoid risk of prosecution. Increased levels of litigation concerning businesses of varying sizes and issues such as refinancing, debt claims and insolvency are anticipated in the near term. When a company is in financial distress, it is important for directors to demonstrate that they have followed financial due diligence and compliance to protect the company and themselves against personal liability, criminal sanctions and legal claims. Directors face a difficult task trying to steer the ship in torrid financial circumstances. Desperate times may lead to desperate decisions. The tipping point for a company in financial difficulty will be an objective one to assess. This article sets out the steps that directors, in particular chief financial officers, can take in collaboration with their company’s general counsel and CEO to manage these risks and protect their business, especially when dealing with suppliers or buyers. If in doubt, directors must ensure that they document their decision paths and, if necessary, rely on professional advice. DIRECTORS’ DUTIES The general duties specified in sections 171 to 177 of the Companies Act 2006 (2006 Act) are owed by a director to the company. The law does not differentiate between executive and non-executive directors, or between shadow and de facto directors. Exercising powers A director must: • Act in accordance with the company’s constitution and exercise powers only for the purposes for which they are conferred (section 171, 2006 Act). • Exercise independent judgment (section 173, 2006 Act). Promoting success A director must act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (see box “Section 172 compliance”). In doing so, they should have regard, among other matters, to: • The likely consequences of any decision in the long term. • The interests of the company’s employees. • The need to foster the company’s business relationships with suppliers, customers and others. © 2021 Thomson Reuters. All rights reserved. 3 Litigation risk in the post-Covid world: steering the ship on..., Practical Law UK... • The impact of the company’s operations on the community and the environment. • The desirability of the company maintaining a reputation for high standards of business conduct. • The need to act fairly as between members of the company (section 172, 2006 Act). Where the company is insolvent, the director must also have regard to the interests of the company’s creditors. This obligation applies generally when the company is in financial difficulties and can kick in where the creditors’ money is at risk; the company does not have to be technically insolvent on a balance sheet or cash flow basis. Care, skill and diligence A director of a company must exercise reasonable care, skill and diligence (section 174, 2006 Act). This is assessed both objectively and subjectively, and means the care, skill and diligence that would be exercised by a reasonably diligent person with: • The general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company. • The general knowledge, skill and experience that the director has. Information. Directors must ensure that they receive the information that they need in order to carry out their roles and satisfy their duties. The board has oversight duties in relation to compliance so the directors will need to ensure that the quality and frequency of the management information that they receive is adequate. The directors will need to ensure that the company’s compliance policy responds to the company’s risk profile and risk assessments, and that the procedures put into place remain fit for purpose. The directors will need to make a judgment call as to the detail and frequency of the information that they require. Where the information provided to the board is legally privileged, the group to whom it is disseminated must be considered as well as how any advice is reflected in the minutes. Advisers. Directors must be satisfied that they have a proper understanding of their functions and duties, the fundamental principles of company law, the company’s business, the risks faced by the company and the regulatory and compliance regime in which it operates. They should receive any necessary training to keep their knowledge, skills and experience up to date. Of course, they can rely on the expertise of their colleagues and advisers and a failure to do so may amount to a breach of the duty. In Re Duomatic Ltd, for example, a director had a defence to a charge of breach of duty if the matter was ratified by the unanimous vote of the shareholders ([1969] 2 Ch 365; see Briefing “The Duomatic principle: informal shareholder decision making”). Seeking advice does not reduce or remove the duty of a director to supervise the discharge of delegated functions. Conflicts of interest © 2021 Thomson Reuters. All rights reserved. 4 Litigation risk in the post-Covid world: steering the ship on..., Practical Law UK... A director of a company must avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company (section 175, 2006 Act) (section 175). This applies especially to the exploitation of any property, information or opportunity. If the conflict has been authorised in advance and this is permitted in the company’s constitution, then this will not breach the duty under section 175. In order to authorise the conflict, the relevant meeting must be quorate without counting any interested directors and the authorisation must be given without counting their votes. Directors must give full disclosure of the scope and nature of the conflict for the authorisation to be effective. Benefits from third parties A director of a company must not accept a benefit from a third party conferred by reason of being a director for doing, or not doing, anything as director (section 176, 2006 Act). A “third party” means a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate.
Load more

Recommended publications
  • UK (England and Wales)
    Restructuring and Insolvency 2006/07 Country Q&A UK (England and Wales) UK (England and Wales) Lyndon Norley, Partha Kar and Graham Lane, Kirkland and Ellis International LLP www.practicallaw.com/2-202-0910 SECURITY AND PRIORITIES ■ Floating charge. A floating charge can be taken over a variety of assets (both existing and future), which fluctuate from 1. What are the most common forms of security taken in rela- day to day. It is usually taken over a debtor's whole business tion to immovable and movable property? Are any specific and undertaking. formalities required for the creation of security by compa- nies? Unlike a fixed charge, a floating charge does not attach to a particular asset, but rather "floats" above one or more assets. During this time, the debtor is free to sell or dispose of the Immovable property assets without the creditor's consent. However, if a default specified in the charge document occurs, the floating charge The most common types of security for immovable property are: will "crystallise" into a fixed charge, which attaches to and encumbers specific assets. ■ Mortgage. A legal mortgage is the main form of security interest over real property. It historically involved legal title If a floating charge over all or substantially all of a com- to a debtor's property being transferred to the creditor as pany's assets has been created before 15 September 2003, security for a claim. The debtor retained possession of the it can be enforced by appointing an administrative receiver. property, but only recovered legal ownership when it repaid On default, the administrative receiver takes control of the the secured debt in full.
    [Show full text]
  • 1/1 DIRECTOR and OFFICER LIABILITY in the ZONE of INSOLVENCY: a COMPARATIVE ANALYSIS HH Rajak Summary It Is the Duty of the Dire
    HH RAJAK (SUMMARY) PER/PELJ 2008(11)1 DIRECTOR AND OFFICER LIABILITY IN THE ZONE OF INSOLVENCY: A COMPARATIVE ANALYSIS HH Rajak* Summary It is the duty of the directors of a company to run the business of the company in the best interests of the company and its shareholders. In principle, the company, alone, is responsible for the debts incurred in the running of the company and the creditors are, in principle, precluded from looking to the directors or shareholders for payment of any shortfall arising as a result of the company's insolvency. This principle has, in a number of jurisdictions undergone statutory change such that in certain circumstances, the directors and others who were concerned with the management of the company may be made liable to contribute, personally, to meet the payment – in part or entirely – of the company's debts. This paper aims to explore this statutory jurisdiction. It also seeks to describe succinctly the process by which the shift from unlimited to limited liability trading was achieved. It will end by examining briefly a comparatively new phenomenon, namely that of a shift in the focus of the directors' duties from company and shareholders to the creditors as the company becomes insolvent and nears the stage of a formal declaration of its insolvent status – the so-called 'zone of insolvency'. * Prof Harry Rajak. Professor Emeritus, Sussex Law School, University of Sussex. 1/1 DIRECTOR AND OFFICER LIABILITY IN THE ZONE OF INSOLVENCY: A COMPARATIVE ANALYSIS ISSN 1727-3781 2008 VOLUME 11 NO 1 HH RAJAK PER/PELJ 2008(11)1 DIRECTOR AND OFFICER LIABILITY IN THE ZONE OF INSOLVENCY: A COMPARATIVE ANALYSIS HH Rajak* 1 Introduction It is a generally accepted proposition that the duty of the directors of a company is to run the business of the company in the best interests of the company.
    [Show full text]
  • Proposals for Mitigating the Short Term Effects on Viable Businesses of Covid-19
    PROPOSALS FOR MITIGATING THE SHORT TERM EFFECTS ON VIABLE BUSINESSES OF COVID-19 1 INTRODUCTION 1.1 Many will have concerns about the short term impact that Covid-19 may have on businesses that would otherwise be viable (for example as a result of short term disruptions to supply chains or temporary reduced customer demand). We have therefore set out below a number of proposals, for discussion with the Insolvency Service, as to how some of the immediate effects of Covid-19 may be mitigated. 1.2 If the short-term impact of Covid-19 is not satisfactorily countered, and viable businesses are not preserved, there will be lasting damage to the wider economy. 1.3 Given our focus as City of London lawyers, we put forward our ideas by reference to the impact on the corporate sector but we are conscious of the importance of taking complementary measures to achieve stability amongst partnerships and other unincorporated businesses if the objectives articulated below are to be achieved. 1.4 We would be happy to discuss or expand on any of the comments made in this paper, if requested. 2 PROPOSALS 2.1 The objectives behind these proposals are: (a) to give businesses a short breathing space, to address a temporary disruption in revenue and to free them from the risk of a creditor presenting a winding up petition and all the consequences that flow from that, in which to deal with any short term liquidity or trading issues that they may suffer as a result of the Covid-19 situation; (b) to provide an additional mitigating factor in relation to wrongful
    [Show full text]
  • Business Law & Practice Review 2003
    Centre for Business Law & Practice School of Law University of Leeds BBUUSSIINNEESSSS LLAAWW && PPRRAACCTTIICCEE RREEVVIIEEWW 22000033 -- 22000044 1 Centre for Business Law & Practice, School of Law, University of Leeds BUSINESS LAW & PRACTICE REVIEW 2003 - 2004 CONTENTS pages About the Centre 2 Introduction 3 Research Degrees and Teaching Programmes 4 - 6 General Activity 7 - 8 Research Outcomes 9 - 15 Editorial Work 16 Working Papers 17 - 66 Appendix 1 : Constitution of the Centre 66 – 67 Appendix 2 : Officers of the Centre 68 2 ABOUT THE CENTRE The Centre for Business Law and Practice is located in the School of Law at the University of Leeds and its aim is to promote the study of all areas of Business Law and Practice, understood as the legal rules which regulate any form of business activity. It seeks to promote all forms of research, including, doctrinal, theoretical (including socio-legal) and empirical research and to develop contacts with other parts of the academic world, as well as the worlds of business and legal practice in order to enhance mutual understanding and awareness. The results of its work are disseminated as widely as possible by publishing monographs, articles, reports and pamphlets as well as by holding seminars and conferences with both in-house and outside speakers. Staff members have acted as consultants to law firms, accounting bodies and the International Monetary Fund. Research has been undertaken in many areas of business law including banking, business confidentiality, corporate (general core company law as well as corporate governance and corporate finance), employment, financial institutions, foreign investment, insolvency, intellectual property, international trade, corporate crime and taxation.
    [Show full text]
  • Directors' Duties and Liabilities in Financial Distress During Covid-19
    Directors’ duties and liabilities in financial distress during Covid-19 July 2020 allenovery.com Directors’ duties and liabilities in financial distress during Covid-19 A global perspective Uncertain times give rise to many questions Many directors are uncertain about their responsibilities and the liability risks The Covid-19 pandemic and the ensuing economic in these circumstances. They are facing questions such as: crisis has a significant impact, both financial and – If the company has limited financial means, is it allowed to pay critical suppliers and otherwise, on companies around the world. leave other creditors as yet unpaid? Are there personal liability risks for ‘creditor stretching’? – Can you enter into new contracts if it is increasingly uncertain that the company Boards are struggling to ensure survival in the will be able to meet its obligations? short term and preserve cash, whilst planning – Can directors be held liable as ‘shadow directors’ by influencing the policy of subsidiaries for the future, in a world full of uncertainties. in other jurisdictions? – What is the ‘tipping point’ where the board must let creditor interest take precedence over creating and preserving shareholder value? – What happens to intragroup receivables subordinated in the face of financial difficulties? – At what stage must the board consult its shareholders in case of financial distress and does it have a duty to file for insolvency protection? – Do special laws apply in the face of Covid-19 that suspend, mitigate or, to the contrary, aggravate directors’ duties and liability risks? 2 Directors’ duties and liabilities in financial distress during Covid-19 | July 2020 allenovery.com There are more jurisdictions involved than you think Guidance to navigating these risks Most directors are generally aware of their duties under the governing laws of the country We have put together an overview of the main issues facing directors in financially uncertain from which the company is run.
    [Show full text]
  • [2010] EWCA Civ
    Neutral Citation Number: [2010] EWCA Civ 895 Case No: A2/2009/1942 IN THE HIGH COURT OF JUSTICE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION (COMPANIES COURT) MR NICHOLAS STRAUSS QC (SITTING AS A DEPUTY JUDGE OF THE CHANCERY DIVISION) Royal Courts of Justice Strand, London, WC2A 2LL Date: 30th July 2010 Before: LORD JUSTICE WARD LORD JUSTICE WILSON and MR JUSTICE HENDERSON - - - - - - - - - - - - - - - - - - - - - Between: (1) David Rubin (2) Henry Lan (Joint Receivers and Managers of The Consumers Trust) Appellants - and - (1) Eurofinance SA (2) Adrian Roman (3) Justin Roman (4) Nicholas Roman Respondents (Transcript of the Handed Down Judgment of WordWave International Limited A Merrill Communications Company 165 Fleet Street, London EC4A 2DY Tel No: 020 7404 1400, Fax No: 020 7404 1424 Official Shorthand Writers to the Court) Tom Smith (instructed by Dundas & Wilson LLP) for the appellant Marcus Staff (instructed by Brown Rudnick LLP) for the respondent Hearing dates: 27 and 28th January 2010 - - - - - - - - - - - - - - - - - - - - - Judgment As Approved by the Court Crown copyright© See: permission to appeal and a stay of execution (at bottom) Lord Justice Ward: The issues 1. As the issues have been refined in this Court, there are now essentially two questions for our determination: (1) should foreign bankruptcy proceedings, here Chapter 11 proceedings in the United States Bankruptcy Court for the Southern District of New York, including the Adversary Proceedings, be recognised as a foreign main proceeding in accordance with the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”) as set out in schedule 1 to the Cross-Border Insolvency Regulations 2006 (“the Regulations”) and the appointment therein of the appellants, Mr David Rubin and Mr Henry Lan, as foreign representatives within the meaning of Article 2(j) of the Model Law be similarly recognised; and (2) should the judgment or parts of the judgment of the U.S.
    [Show full text]
  • International Dimensions of Japanese Insolvency Law
    MONETARY AND ECONOMIC STUDIES/FEBRUARY 2001 International Dimensions of Japanese Insolvency Law Raj Bhala This paper offers an introduction and overview of the international aspects of Japanese insolvency law. There are three international dimensions to Japan’s insolvency law: jurisdiction of Japanese courts; the status of foreign claimants; and recognition and enforcement of foreign proceedings. These dimensions are characterized by a distinctly territorial approach. This inward-looking way of handling insolvency cases is incongruous with developments in the comparative and international law context. It is also at odds with broader globalization trends, some of which are evident in Japan’s economic crisis. Analogies to international trade law are useful: the post-Uruguay Round dispute resolution mechanism has insights for the problem of jurisdiction; the famous national treatment principle is a basis for critiquing the status foreign claimants have in Japanese insolvency proceedings; and trade negotiations might be a model for expanding recognition and enforcement of foreign proceedings. As a corollary, the relationship between the extant insolvency regime and Japanese banks— many of which are internationally active—is explored. Problem banks are at the heart of the economic crisis. Yet, the insolvency law regime has not been applied to failed or failing banks, partly on grounds of the systemic risk that would be triggered by a stay of creditor proceedings. The reluctance to use the regime in bank cases is open to question on a number of grounds. Similarly, the failure to develop a harmonized set of international bank bankruptcy rules to avoid BCCI-type liquidation problems is addressed, and a proposal for proceeding in this direction is offered.
    [Show full text]
  • Can a Struggling Company Ever Justify Paying Some - but Not All - of Its Creditors?
    CAN A STRUGGLING COMPANY EVER JUSTIFY PAYING SOME - BUT NOT ALL - OF ITS CREDITORS? In light of the financially fragile state some businesses are finding themselves in as result of COVID-19, we discuss in this briefing note when – if ever – payments or other benefits can be given to some creditors but not others, and when such a transaction might fall foul of the unlawful preference provisions of UK insolvency legislation. This is a fast-moving area and this briefing note sets out the position as at 7 April 2020. WHY ARE TRANSACTIONS CHALLENGED? When a company enters a formal insolvency procedure, the insolvency practitioner appointed Unlawful preference as liquidator or administrator of the company will review the transactions into which the transactions can be company entered in the run-up to its insolvency. They will then assess whether any of those unwound, leading to transactions might be challenged under the ‘antecedent transactions’ provisions of UK court orders to repay insolvency legislation. This provides an opportunity to bring money or other assets back into funds or return the company’s estate, which increases the pool of assets from which a distribution can be property. made to the company’s creditors. WHAT IS AN UNLAWFUL PREFERENCE? An unlawful preference can be challenged by an administrator or liquidator under section 239 of the Insolvency Act 1986 (the “Insolvency Act”). Under these provisions, a company gives a preference if: • the company does anything (or suffers anything to be done) which has the effect of putting
    [Show full text]
  • What Does the Temporary Relief from Wrongful Trading Tell Us About Singapore’S New Insolvency Law Regime? Stacey Steele*
    Asian Legal Conversations — COVID-19 Asian Law Centre Melbourne Law School Insolvency Law Responses to COVID-19: What does the Temporary Relief from Wrongful Trading Tell Us about Singapore’s New Insolvency Law Regime? Stacey Steele* The Singapore Government introduced temporary measures to relieve officers from new wrongful trading provisions as part of its response to COVID-19 in April 2020. The provisions establishing liability for wrongful trading are set out in the Insolvency, Restructuring and Dissolution Act 2018 (Singapore) (the “IRDA”) – which is yet to become effective. Singapore’s measures are in line with the position taken by many other jurisdictions, but they come at a time when the IRDA provisions aren’t even operative. This post asks, “what does this temporary relief from wrongful trading liability tell us about Singapore’s new insolvency law regime?” New wrongful trading provisions in the IRDA Singapore’s existing fraudulent and insolvent trading provisions were substantially reformed and a new liability for wrongful trading was introduced in 2018 by the IRDA as part of a package of reforms to strengthen Singapore’s status as an international hub for debt restructuring. Under section 239(1) of the IRDA: If, in the course of the judicial management or winding up of a company or in any proceedings against a company, it appears that the company has traded wrongfully, the Court… may… declare that any person who was a party to the company trading in that manner is personally responsible… for all or any of the debts or other liabilities of the company as the Court directs, if that person: • knew that the company was trading wrongfully; or • as an officer of the company, ought, in all the circumstances, to have known that the company was trading wrongfully.
    [Show full text]
  • An Introduction to Corporate Insolvency Law
    University of Plymouth PEARL https://pearl.plymouth.ac.uk The Plymouth Law & Criminal Justice Review The Plymouth Law & Criminal Justice Review, Volume 08 - 2016 2016 An Introduction to Corporate Insolvency Law Anderson, Hamish Anderson, H. (2016) 'An Introduction to Corporate Insolvency Law',Plymouth Law and Criminal Justice Review, 8, pp. 16-47. Available at: https://pearl.plymouth.ac.uk/handle/10026.1/9038 http://hdl.handle.net/10026.1/9038 The Plymouth Law & Criminal Justice Review University of Plymouth All content in PEARL is protected by copyright law. Author manuscripts are made available in accordance with publisher policies. Please cite only the published version using the details provided on the item record or document. In the absence of an open licence (e.g. Creative Commons), permissions for further reuse of content should be sought from the publisher or author. Plymouth Law and Criminal Justice Review (2016) 1 AN INTRODUCTION TO CORPORATE INSOLVENCY LAW Hamish Anderson1 Abstract English law provides three forms of insolvency proceeding for companies: liquidation, administration and company voluntary arrangements. This paper begins by examining the nature and purpose of insolvency law, the concepts of insolvency and insolvency proceedings, how insolvency practice is regulated and the role of the court. It then considers the sources of the law before describing the distinguishing characteristics of liquidation, administration and company voluntary arrangements. Finally, it deals with the sanctions for malpractice, transaction avoidance and cross-border insolvency. Keywords: insolvency, liquidation, administration, company voluntary arrangement, office- holder, wrongful trading, fraudulent trading, director disqualification, transaction avoidance Introduction This paper is a high level introduction to corporate insolvency law for students of company law.
    [Show full text]
  • Outline of Recent SEC Enforcement Actions
    Outline of Recent SEC Enforcement Actions Submitted by: 1 Joan McKown Chief Counsel Prepared by: 2 Division of Enforcement U.S. Securities and Exchange Commission Washington, D.C. 1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or its staff. 2 Parts of this outline have been used in other publications. Table of Contents CASES INVOLVING FINANCIAL FRAUD & OTHER DISCLOSURE AND REPORTING VIOLATIONS...................................................................................................................2 SEC v. Jacob Alexander, David Kreinberg, and William F. Sorin ...................................................................... 2 SEC v. MBIA Inc........................................................................................................................................................... 3 In the Matter of City of San Diego, California ......................................................................................................... 3 SEC v. Viper Capital Management, LLC, et al. ....................................................................................................... 4 SEC v. Michael Moran, James Sievers, Martin Zaepfel, James Cannataro, John Steele, Michael Crusemann and Michael Otto ..............................................................................................................................
    [Show full text]
  • Global Restructuring & Insolvency Guide
    Global Restructuring & Insolvency Guide Egypt Overview and Introduction As in other jurisdictions, the primary objective of the Egyptian insolvency and bankruptcy regulation (collectively, the “Insolvency and Bankruptcy Regulation”) is to protect and maximise the value of the bankrupt company for the benefit of all the creditors. The bankruptcy regulation was substantially overhauled and culminated in what was perceived to be a “more modern bankruptcy regime”, which came into operation on 1 October 1999. However, the Egyptian Insolvency and Bankruptcy Regulation remains lacking and requires an in-depth review. Indeed, various parts of the legislation need to be updated, and the relevant legislation requires further consolidation for easier understanding and application. Applicable Legislation The Insolvency and Bankruptcy Regulation in Egypt is scattered among the Civil Code of 1948, Companies Law No. 159 of 1981, and the bankruptcy rules under Trade Law No. 17 of 1999 ("Trade Law"). It is worth noting that Egyptian law differentiates between insolvency, which is regulated under the Civil Law, and bankruptcy, which is regulated under the Trade Law. In this respect, the Civil Law provides that a debtor may be declared insolvent if his assets are insufficient to pay his due debts. The insolvency rules, as regulated by the Civil Law, apply to non-traders with regards to non- commercial debts. Meanwhile, bankruptcy rules, as regulated by the Trade Law, apply to traders who, according to said law, are bound to hold commercial registers. According to the Trade Law, a trader shall be considered in the state of bankruptcy in the event he stops paying his commercial debts following disturbance of his financial business.
    [Show full text]