1489313 - Hogan Lovells FIS Horizons 2021 update - Flipbook - Page 16
Hogan Lovells
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Compromising debts in the COVID-19 era
The social and economic consequences of the COVID-19 pandemic continue to create
shock waves throughout the world. When implementing emergency measures to
address the pandemic, many governments have tried – and are still trying – to balance
the risk to lives from the pandemic against the risk to livelihoods from the restrictions
imposed on business in an attempt to contain the virus. In a number of jurisdictions,
temporary and permanent changes have been made to insolvency and restructuring
laws with the aim of giving struggling but ultimately viable companies a breathing space
in which to restructure and recover. One of the new tools introduced in a number of
jurisdictions is an ability for a corporate creditor to impose a compromise of its debts
on dissenting creditors. Some of these new processes have been in the legislative
pipeline for some time but have been fast-tracked this year; they come at an important
time for borrowers and creditors alike as many businesses will need to reshape their
finances in the face of declining 2020 revenues and an uncertain road to recovery in
many sectors, combined with escalating debts from deferred liabilities and extra
liquidity borrowed to survive the pandemic.
In this article we look at new compromise proceedings in four different jurisdictions:
Australia, Germany, the Netherlands and the UK.
Australia
On 24 September 2020, the Federal Government
announced plans to implement a new small
business restructuring regime, which will
adopt certain key aspects of the US Chapter
11 bankruptcy process. The announcement
represents the biggest change to Australia’s
insolvency laws since the early 1990s.
The SME sector is of vital importance to the
Australian economy, and SMEs have been hit
particularly hard by the COVID-19 pandemic.
97.5% of businesses in Australia employ fewer
than 20 employees and small businesses in
Australia employ approximately 4.7m people
(44% of the total number of people employed in
the private, non-financial sector).
The proposed regime is intended to be faster,
less complex, more efficient, more flexible and
more cost-efficient than the current liquidation
and voluntary administration regimes, and aims
to maximize small businesses’ chances of survival.
Critically, and most radically in the context of
the existing “creditor in possession” options for
external administration in Australia, the new
regime will provide a “debtor in possession”
framework.
The new regime came into effect on 1 January
2021, following the expiration of the extended
COVID-19 insolvency relief measures on 31
December 2020.
