Lawyer Monthly - December 2021 Edition

71 DEC 2021 | WWW.LAWYER-MONTHLY.COM MEDIATION AND ARBITRATION - HOW CAN INSOLVENCY IMPACT ONGOING ARBITRATION PROCEEDINGS? determined by national or international insolvency law, the jurisdiction in which the insolvent company operates, contract law and the seat of the arbitration. The type of insolvency procedure pursued on a voluntary or compulsory basis will determine if it is feasible for arbitration proceedings to continue. Company liquidation – If a company is placed into insolvent liquidation, a licensed insolvency practitioner will be appointed as company liquidator. The liquidator will take control of company affairs and raise funds to repay creditors with the view to maximise value. The closure of the company will be forensically controlled to ensure that all distributions are made per the Insolvency Act 1986, which sets out who gets paid first during liquidation. If the ongoing dispute concerns a creditor, the circumstances will be judged to determine if an agreement can be reached through arbitration, or if a claim should be submitted through the insolvency process. Company administration – During company administration, a licensed insolvency practitioner will be appointed as the company administrator to oversee intensive recovery and facilitate rescue, such as a business sale. When entering company administration, the business will be protected against legal action from creditors to allow for uninterrupted recovery. A moratorium on legal proceedings is seek professional support. All trading must halt, and a licensed insolvency practitioner must be appointed to review the business and decide to either close the company or rescue the company if there is a possibility of business turnaround. The primary aim of the insolvency practitioner will be to act in the best interests of creditors, raise funds to repay creditors and maximise value. As a result, dispute resolution affairs may halt as insolvency proceedings take precedence and the handling of the business is taken over by a licensed insolvency practitioner. The Insolvency Act 1986 The interplay between insolvency and arbitration proceedings will ultimately be fight for survival rolled out as cash flow was obliterated overnight and consumer spending took a downturn. To accelerate business recovery and prevent the demise of the UK’s largest contributors to the labour market, the UK government introduced state-backed loans, COVID-19 grants, and emergency COVID-19 funding. A moratorium on winding up petitions was also announced through the Corporate Insolvency and Governance Act 2020 to protect businesses crippled by COVID-19 economic disruption. As creditors waited on the sidelines until the moratorium was lifted on 30 September 2021 to seek legal action against debtors, a wave of corporate insolvencies is now underway as predicted by the sector. Insolvency statistics provided by Real Business Rescue for Q2 2021 shows that there were 3,116 company insolvencies in Q2 overall. This represents a 31% increase vs Q1 figures (2,371 insolvencies) and is also the highest quarterly insolvency figure since before Covid-19. When a business is under serious financial pressure due to poor cash flow, tax debts, and reduced consumer demand, and can no longer afford to continue trading, it is the director’s prerogative to cease trading and dispute resolution affairs may halt as insolvency proceedings take precedence and the handling of the business is taken over by a licensed insolvency practitioner.