What are the current planning restrictions on supermarkets, food retailers and distribution centres concerning deliveries?

Directors of a company that is in, or potentially facing, financial difficulty have a duty to act in the best interests of creditors as a whole. Failure to comply with that duty can have consequences for directors (including personal liability and disqualification if directors get it wrong).

The duty to act in the best interests of creditors as a whole begins when the company is (or in some cases is potentially or at risk of becoming) insolvent i.e. its assets are worth less than its liabilities and/or the business is unable to pay its liabilities as and when they fall due. However, just because a company is insolvent doesn’t always necessarily mean than an insolvency process is inevitable. Sometimes, the insolvency might just be caused by a temporary cashflow problem or perhaps wider problems in the business that can be overcome by making changes to the business itself.

In addition to that, the potential liability of directors ramps up even further when the company reaches the stage that the directors have concluded (or ought to have concluded) that there was no reasonable prospect of the business avoiding liquidation or administration. If the business reaches that stage, in addition to having to act in the best interests of creditors as a whole, directors can find themselves personally liable unless, from the time the directors ought to have reached that conclusion, they took every step that they ought to have done to minimise the loss to creditors. This is known as wrongful trading.

On the 25th June 2020, the government introduced new legislation – the Corporate Insolvency and Governance Act 2020 – which includes measures to temporarily relax the rules around wrongful trading with the proposed changes to take effect retrospectively from the 1st March 2020. Essentially, the changes say that any court looking at a potential wrongful trading claim against a director is to assume that the director is not responsible for worsening the company’s financial position between 1st March 2020 and the 30th September 2020. Whilst the wrongful trading rules have relaxed, directors still need to proceed with caution if the business is potentially insolvent as the new Act does alter other potential pitfalls for directors, like the risk of breaching their duties or allowing the company to enter into transactions that can potentially be challenged.

The support being offered by the government is potentially a lifeline for businesses under pressure through no fault of their own, but notwithstanding the recent changes to the wrongful trading rules it is still likely to be important for the board to carefully consider whether it is appropriate to make use of the loans, grants and tax forbearance that are on offer.

Exactly what the board should consider will vary from business to business and getting it right can sometimes involve balancing several different (and at times conflicting) priorities, challenges and concerns.

Employees are generally permitted to take holidays during furlough. However, Government guidance has been updated to state that “Employees should not be placed on furlough for a period simply because they are on holiday for that period.” If a period of furlough happens to coincide with an employee’s holiday then you should ensure that there are business grounds to support furlough being used in that instance so that it isn’t just being used as a means to fund holiday utilisation.

Almost two thirds of hearings conducted in the Civil Court will occur in person over the next few months as the Civil Court sees an influx in cases.

The Courts

In the Business & Property Courts, cases have been dealt with consistently since the start of the pandemic, except for trials that run for longer than 10 days in the Commercial & Admiralty Court. The Queen’s Bench Division and Administrative Court are also running as normal. If your case is listed for one of these courts, you do not need to be concerned that your case may take longer than anticipated, with conclusions still being reach at the normal rate.

Hearings

Since the start of the pandemic, most hearings have been conducted online through various platforms such as Skype for Business and Cloud Video Platform. The courts are of the view that remote hearings tend to take longer than those that are held in person. As a result, if your case is due to be held in person, the case may be heard in less time. HM Courts and Tribunals Service stated that:

“Wherever possible we will look to facilitate face-to-face hearings, but our expectation is that remote hearings will continue to play an important role for the foreseeable future, given that social distancing will continue to limit courtroom capacity compared to pre-Covid levels.”

More courtrooms have become available since the start of the pandemic, resulting in more facilities for cases to be heard in person, which will have the aim of helping to rid of the backlog of cases, along with remote hearings being conducted too, which is a welcome step forward.

Approximately 300 additional support staff will be employed for remote hearings before the end of 2020, enabling better service with remote hearings. The Government has decided that some civil judges will have the option to extend operating hours for cases to be held in the evenings and on weekends too, which may be most suitable for small and fast-track claims, resulting in a potentially faster outcome. The efficiency of all the new measures are being monitored and changes are being implemented, such as increasing the capacity of the Small Claims Mediation Service.

Small Claims Mediation Service

With claims of a lower value, a high proportion of cases successfully settle outside of court, therefore, if you have a small claim, the mediation service may be suitable for your case. Mediation involves a trained impartial third party, with the parties to the case discuss the dispute with the assistance of the third party, aiming to reach a settlement. Now with the increased capacity, it may make the mediation service more accessible, meaning that an agreement can be reached more swiftly rather than waiting for the matter proceed to a hearing.

The courts have stated that:

“We aim to increase capacity to accommodate 90% of parties who want mediation, rather than the current 40%. We are recruiting additional mediators and restructuring ways of working to achieve this.”

This is a positive shift for those with small and fast-track claims where legal costs ought to be kept to a minimum. Settling by mediation removes the need for trial costs, amongst other costs, and has additional benefits such as the matter being dealt with more amicably.

State aid rules are contained in the Treaty on the Functioning of the European Union (previously referred to as the Treaty of Rome). The State aid rules prohibit the use of state resources, or any public support with an economic value, which given selectively has the capacity to distort trade by favouring certain undertakings, or the production of certain goods, and which has the potential to affect trade between Member States. Where aid is present it must not be granted unless it has been specifically approved in advance by the European Commission or benefits from a general exemption to the rules.

In general, the rules apply to all State actions which might assist businesses including:

• Grants
• “Soft” loans
• Selling to business at an undervalue
• Buying from business at an overvalue

The government has announced a number of measures to try to protect businesses during the current period of uncertainty. However there is no outright ban on creditors being able to take legal action to recover money they are owed, though there are temporary restrictions on some forms of legal action, like winding up petitions.

However, it is important to note that these measures only relate to winding up proceedings. Creditors will still be free to commence county court claims.

The new Corporate Insolvency and Governance Act 2020 brings in a new “moratorium” procedure. Businesses in financial difficulty that are viable and can be rescued will now be able to work with an insolvency practitioner to obtain at least 20 business days’ breathing space from creditors to allow the business to formulate a plan to deal with its financial problems.

For more information on the Corporate Insolvency and Governance Act, click here

As part of the raft of measures put forward by the government over recent months, there are also restrictions on landlords taking action to evict commercial tenants who miss rent payments. Various payment holidays and forbearance have been put in place in respect of certain tax liabilities and some business rates.

If your business is going to go into an insolvency process like administration or a company voluntary arrangement, there is the ability to obtain a freeze on creditors taking action whilst those procedures are put in place. However, these sorts of moratoriums will not be available to everyone and in any event not unless an insolvency process is being instigated.

Regardless of whether a business has formal protection from creditors or not, engagement with creditors and trying to reach agreement with them to deal with the debt is therefore vital. Much of the protection measures that the Government has introduced like curbing the ability of landlords to evict a commercial tenant, do not wipe out the debt. They simply prevent action being taken or a payment becoming due for a short time. All businesses should use that time to consider how those debts can be dealt with and engage with the relevant stakeholders sooner rather than later.