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COVID-19 – Professionals Are Working Hard to Save Businesses and Jobs

COVID-19 - Professionals Are Working Hard to Save Businesses and Jobs

The COVID-19 pandemic has caused an economic implosion from which many once thriving businesses will never recover. However, as a High Court case showed, legal and insolvency professionals are working all hours to ensure that the personal and financial pain of corporate failures is kept to a minimum.

The case concerned a group of nine companies which provided vehicle crash repair facilities, principally for insurance company clients. It was hit hard by the pandemic and had either lost, or was likely to lose, many of its biggest clients. It had defaulted on banking covenants and, after its loan facilities were frozen, all that was left to it was the rapidly dwindling balances of its current accounts.

The group owed £31.7 million to two banks and, when valued on a fully-funded ‘buy out’ basis, the deficit in its defined benefit pension scheme would be £117.5 million. All attempts by the group’s sole remaining director to raise fresh funds had ended in failure and the jobs of its 2,890 employees were at risk. Faced by imminent collapse, the group made an emergency application to the Court under the Insolvency Act 1986 for the appointment of administrators.

Ruling on the matter, the Court noted that, with the assistance of insolvency and other professionals, the director had succeeded in negotiating a sale of the group. The deal offered an immediate return to secured creditors of about £26.7 million together with a contingent, deferred, sum of £5 million. Unsecured creditors would recover little, but about £96,000 would be paid into the pension scheme. The jobs of 2,350 employees would be saved and transferred to the new owner under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Granting the group’s application, the Court found that it was clearly very substantially balance sheet insolvent and that a pre-pack sale of its business represented the only realistic option. If the group were wound up, secured creditors would be likely to receive only about £19 million. In that event, unsecured creditors and the pension scheme would be in an even weaker position and all the group’s employees would lose their jobs at a time of looming economic hardship.

COVID-19 Information

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