As we enter the second step of the second phase of the UK government's phased plan to deal with COVID-19, many are beginning to consider what the next chapter holds.
Waterstones is preparing to put books into quarantine after they have been handled by browsing shoppers as part of plans to reopen its stores when allowed. Let’s hope that this is not as much of a logistical nightmare as it sounds!
The retailer has seen online sales rise more than 300% during lockdown. It seems that the closure of all bookstores since the end of March as well as enforced leisure and limited options for entertainment have strengthened demand for Waterstones’ books.
In an attempt to assist many retailers who are struggling during this outbreak, there is also new legislation which is coming into force under cover of the Corporate Insolvency and Governance Bill. This bill (as currently written) is incredibly debtor-friendly and it will mean that:
- all “eligible” companies (as defined in Schedule ZA1 to the bill) may apply for a moratorium. The initial period of any moratorium is 20 business days, but it may be extended or terminated early. The effects of the moratorium are fairly extensive and can mean that no legal process can by commenced or continued against the company or its property (without court permission).
- a prohibition on presenting petitions in the period between 27 April 2020 and 30 June 2020, in certain circumstances where the facts relied upon as founding the petition would not have arisen but for COVID-19.
- In determining what order to make in a wrongful trading matter, the Court will assume that directors of eligible companies are not responsible for any worsening of the financial position of the company or its creditors in the period between 1 March 2020 and 30 June 2020. Though, directors should of course bear in mind the effect continuing to trade might have on other duties owed to a company.
- Termination clauses conditional upon the company’s insolvency in contracts for the supply of goods and services cease to have effect if the company becomes subject to an insolvency procedure (including a moratorium under this bill).
There are a number of pre-conditions that will need to be met by retailers should they wish to rely on any of the new measures anticipated in the bill. However, these measures could assist companies to last out lockdown.
It is likely that these new measures (if, and, howsoever enacted) may cause a deadlock scenario for many creditors. Here, in the case of our book shop example, many publishers/suppliers could find themselves unable to enforce the terms of their contracts with customers/“eligible” companies, subject to moratoriums, placing an increased financial burden on suppliers/publishers.
So, are we likely to see more rescue procedures on the horizon? I guess we will have to turn the page and see!
Waterstones plans to put its books under a 72-hour quarantine