Litigation in the Time of Covid-19
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Litigation in the Time of Covid-19 Legal issues in commerce, finance and insolvency 9th Edition (15 February 2021): Latest developments on contract law, the Corporate Insolvency and Governance Act 2020, company law, banking and financial services, civil procedure, remote litigation and offshore litigation in Bermuda, the BVI and the DIFC 4 Stone Buildings, Lincoln’s Inn, London WC2A 3XT. Tel: +44 (0)20 7242 5524 clerks@4stone buildings.com www.4stonebuildings.com Table of Contents Members of Chambers xii Clerks xx Chambers’ Staff xxii Preface from the Head of Chambers xxiii Preface from the Senior Clerk xxiv Table of Cases xxv Table of Statutes xxxi Table of Statutory Instruments xl Practice Directions xliv Table of EU and International Materials xlvi Section One Contracts Introduction 2 Summary Issues 3 1.1 What happens if a party’s performance is delayed because of the pandemic? 3 1.2 What if one of the parties wants to be released from the contract because of the pandemic? 3 Variation, Suspension and Waiver 3 1.3 What are the options and risks if parties wish to adjust their contractual arrangements due to the pandemic? 3 1.4 When can a party rely on economic duress to challenge adjustments to contractual arrangements? 5 1.5 Can performance of the contract simply be suspended? 7 1.6 How can a breach of contract be waived? 7 Termination, Repudiation, Force Majeure and MAC and MAE Clauses 8 1.7 When can a party rely on a contractual termination clause? 8 1.8 What is the impact of a repudiatory breach? 11 1.9 When will a force majeure clause be engaged? 12 1.10 When will a material adverse change or a material adverse effect clause be engaged? 17 Impossibility and Frustration 19 1.11 When will a contract be frustrated? 19 Other Rights in the Event of a Breakdown in Pre-Contractual Negotiations 23 1.12 What options may a party have if negotiations for a contract break down due to the pandemic? 23 ii Section Two Corporate Insolvency Introduction 28 The Moratorium 31 2.2 Which companies are eligible for a moratorium? 32 2.3 How does an eligible company obtain a moratorium? 34 2.4 What are the effects of obtaining a moratorium on creditors and the company? 35 2.5 Who is the monitor? 38 2.6 When does a moratorium come into force? 39 2.7 What is the duration of a moratorium, including extensions? 40 2.8 When does a moratorium terminate, and what are a director’s and the company’s duties of notification? 41 2.9 What must the company do to publicise the moratorium? 42 2.10 Can I challenge a monitor’s actions? 42 2.11 Can I challenge a director’s actions? 43 2.12 Can the monitor be replaced? 44 2.13 Are there any criminal sanctions related to the new moratorium? 44 2.14 Are there any additional rules applicable to regulated companies? 44 2.15 Where do moratorium debts rank in priority if the company does enter an insolvency procedure? 45 2.16 What happens if the monitor’s remuneration is excessive? 46 Arrangements and Reconstructions for Companies in Financial Difficulty 46 2.18 What do the new provisions on arrangements and reconstructions for companies in financial difficulty allow a company to do? 47 2.19 What are the main differences between Part 26A of the Companies Act 2006 and company voluntary arrangements under the Insolvency Act 1986? 47 2.20 Which companies can use the new provisions in Part 26A of the Companies Act 2006, and when can they do so? 48 2.21 What is the process for entering into a compromise or arrangement under Part 26A of the Companies Act 2006? 50 2.22 Will the existing case law in relation to Part 26 of the Companies Act 2006 apply to Part 26A? 51 2.23 The first court hearing: what are the responsibilities of the applicant and what matters should be dealt with? 51 2.24 What are the requirements for the statement required to be circulated under Part 26A of the Companies Act 2006? 55 2.25 Does anyone other than the company’s creditors or members need to be notified of a proposed Restructuring Plan? 55 2.26 Who is entitled to participate in a meeting summoned under Part 26A of the Companies Act 2006? 57 2.27 What are the requirements for meetings of creditors or members to approve a proposed compromise or arrangement under Part 26A of the Companies Act 2006? 59 2.28 The second hearing: what are the requirements for obtaining the court’s approval of a proposed compromise or arrangement under Part 26A of the Companies Act 2006? 61 2.29 What is the ‘cross-class cram down’ and when can it be used? 61 iii 2.30 Are there any exceptions to who can be bound by a compromise or arrangement under Part 26A of the Companies Act 2006? 64 2.31 Are there special provisions in the event that a compromise or arrangement under Part 26A of the Companies Act 2006 involves the transfer of an undertaking or a company’s property to another company? 64 2.32 Are there special provisions applicable to the issue of new shares by a company entering into an arrangement or reconstruction under Part 26A of the Companies Act 2006? 65 2.33 What are a company’s duties in respect of its Articles of Association? 65 2.34 What is the effect of a court order sanctioning an arrangement or reconstruction under Part 26A of the Companies Act 2006 and when will it be binding? 66 The Prohibition of Termination Clauses 66 2.36 Can a supplier rely on a clause providing for the termination of a contract for the supply of goods or services where a company goes into an insolvency process? 67 2.37 Are there any circumstances under which a termination clause can be exercised notwithstanding the general prohibition? 68 2.38 Are there any exceptions to the application of the new “termination clauses” provisions, so that the provisions do not apply at all? 68 2.39 Is a supplier entitled to insist on payment of any outstanding sums upon the occurrence of an insolvency event? 69 Statutory Demands and Winding-up Petitions 70 2.41 Can a creditor still rely on a Statutory Demand to prove a company’s inability to pay its debts? 71 2.42 What are the practical consequences of the temporary inability to use a statutory demand? 72 2.43 Will a pending winding-up petition be adjourned? 72 2.44 What other restrictions are in place in relation to the presentation of winding- up petitions by creditors? 73 2.45 What are the court’s powers in relation to a winding-up petition presented by a creditor after 27 April 2020, but before the Corporate Insolvency and Governance Act 2020 came into force? 74 2.46 Are there any circumstances in which a winding-up order made on or after 27 April 2020, but before the Corporate Insolvency and Governance Act 2020 came into force, may be reviewed or avoided? 75 2.47 Will additional restrictions be in place where the court considers a creditor’s petition presented on or after 27 April 2020? 76 2.48 What is the procedure for obtaining a winding up order, including the requirements for giving notice of, publicising, advertising or inspecting a winding-up petition, during the relevant period? 77 2.49 Can a debtor company restrain the presentation of a (new) petition? 79 2.50 If a winding-up order is made, when is the winding-up deemed to commence? What is the consequence of this? 79 2.51 What are the time periods for bringing a transaction-avoidance application in relation to a winding-up order made on a petition presented during the relevant period? 80 Suspension of Liability for Wrongful Trading 83 2.52 What is wrongful trading? 83 2.53 What did the Corporate Insolvency and Governance Act 2020 do? 83 iv 2.54 To which companies does the ‘suspension’ apply? 85 Administration 85 2.55 How has the procedure for the filing of a notice of intention to appoint an administrator & a notice of appointment of an administrator been adjusted? 85 2.56 Does furloughing employees have the effect of adopting employment contracts? 86 Procedure 87 2.57 What changes have been made to insolvency procedures as a result of the pandemic? 87 2.58 How are winding-up and bankruptcy petitions currently being listed? 88 2.59 How are other insolvency hearings currently being listed? 89 2.60 What changes have been made to the statutory declarations regime? 90 Section Three Personal Insolvency Introduction 92 Specific Issues 92 3.1 Can individuals benefit from the moratorium in the Corporate Insolvency and Governance Act 2020? 92 3.2 Does the temporary ban on statutory demands in the Corporate Insolvency and Governance Act 2020 apply to personal insolvency proceedings? 92 3.3 Can bankruptcy petitions be presented against debtors during the pandemic? 93 3.4 What is HMRC’s approach to enforcement activity during this period? 93 3.5 Is personal service of a bankruptcy petition still required during the pandemic? 94 3.6 Are bankruptcy petitions being heard or adjourned during the pandemic? 96 3.7 Can the hearing of a bankruptcy petition be avoided if an individual cannot attend the hearing of the petition as a result of the Government’s guidance to self-isolate? 99 3.8 Can the dismissal or withdrawal of bankruptcy petitions be sought on paper e.g.