11 August 2022

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Corporate Insolvency and Governance Act 2020 is now law – and Lufthansa update
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Corporate Insolvency and Governance Act 2020 is now law – and Lufthansa update

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New insolvency law now in operation and Lufthansa hanging in there!

The Corporate Insolvency and Governance Act 2020 completed its whistle-stop tour through Parliament yesterday, notwithstanding a number of amendments in the House of Lords, and received the Royal Assent yesterday evening, 25th June, and therefore became law at midnight last night.  It is without a doubt the largest single change in our insolvency law in the past almost 20 years and updates the Insolvency Act 1986, which is and remains our governing insolvency law in this country.

The new law brings in the concept of moratorium and is now immediately available to companies which want to use it. It is a move closer to the US system where a company can get a moratorium and yet now remain as “debtor in possession”. In other words, apart from having to meet certain criteria and satisfy an insolvency practitioner that the company continues to do so, the management of a company can continue to run it themselves.

There will be those who will see this legislation as a relief and it will be interesting to see when the first cases arise, assuming, that is, that they hit the news!

Insolvency continues to be a major issue arising out of the pandemic and no doubt many will have seen that Intu looks likely to be appointing administrators, that is if it has not already done so when you read this. Intu owns 34 shopping centres spread around the country and so this company going down could have quite some ripple effect. Intu has been another one of those entities badly affected by the lockdown because so many of the shops in its centres were unable to open. However the problems pre-date the pandemic and Intu has been unable to come to arrangements with its creditors.

How this will play out is uncertain. If the administration proceeds then it is likely that the shop units will continue to operate but as can be seen there are quite a few different entities in the chain here and failure at any level can bring about a domino effect. Retailers have been pressing for reduced rents for some time and the fact of shoppers going online in a big way for their shopping in the past three months has certainly hastened the day of crisis.

Hot off the press comes the news that the Lufthansa crisis has been resolved, for the time being at least. The shareholders eventually agreed, with the concurrence of Herr Thiele, by 98% to go along with the government bailout package at their meeting on 25th June. This all came about following the revelations that Lufthansa is basically “out of cash” and shortly insolvency would have to be the next move.

The German government is taking Lufthansa by the throat though. There will be two board members nominated by the government, no dividends can be paid while the package is in force and the airline must start to work on reduction in carbon emissions. All being well, the government will be out again by the end of 2023. So a happy ending?

Back home, the British have more down to earth issues to handle. An “incident” having been declared at Bournemouth yesterday because of 500000 people flocking to the beaches, there is clearly serious concern now about whether the second wave is inevitable. If in doubt, I would stay at home.

Adrian Leopard 26-06-20

Photo Mostafa Meraji

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