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A deep dive into the moratorium – a lender’s perspective

With suspension of insolvency enforcement due to end shortly, lenders face the prospect of borrowers entering the new, free-standing moratorium. Andrew Spink QC, Justina Stewart and Saaman Pourghadiri consider the impact of the new moratorium from a lender’s perspective. How vulnerable are lenders upon entry into the moratorium? Which categories of charge holders are more vulnerable? How might lenders protect their positions, and what opportunities might a moratorium present to lenders?

In this in-depth article, Andrew, Justina and Saaman consider:

  • Protections for lenders arising from: the requirement of companies to meet lenders’ capital and interest payments during the moratorium; the disapplication of “ipso facto” provisions to most financial services contracts; and the ability of lenders, in practice, to stymy the moratorium;
  • Key restrictions on lenders during the moratorium regarding insolvency proceedings, enforcement and legal proceedings, with particular focus on financial collateral arrangements;
  • Restrictions during the moratorium on the disposal of company property, and how fixed charge holders fare in event of disposal;
  • The far-reaching implications of a moratorium for floating charge holders;
  • The impact of a moratorium on set-off and netting provisions;
  • The so-called “super priority” debt – what this is, who benefits and when, the impact on recovery by monitors of their fees, “relevant accelerated debt” (what this is, potential areas of uncertainty, impact on a lender’s incentive to act aggressively, implications for lenders’ systems and documentation, and the impact on floating charge holders’ security);
  • Scope by lenders to challenge directors’ and monitors’ acts/failure to act, and our thoughts on how the court may apply the test of “unfair harm”;
  • DIP rescue finance – a potential opportunity for lenders;
  • The potential of classification of sums due as being under financial services contracts;
  • Finally, thoughts on, in reality, the frequency of use of the new moratorium, with a focus on whether administrations are likely to be more popular.

Read the full article here.

About the authors

Andrew Spink QC is a highly respected commercial chancery advocate who has been described in directories as being “client-friendly and [a] superb cross-examiner”, “very bright”, who “takes everything into account, thinks outside the box and … commercially”, is “terrifyingly good and incisive” and “masters very technical briefs quickly”.  During his career at the Bar, he has been instructed on a range of high-profile insolvency and related matters.   He is a part-time judge sitting as a Deputy High Court Judge in the Queen’s Bench and Chancery Divisions of the English High Court and as a Justice of the Astana International Financial Centre in Kazakhstan.

Justina Stewart is ranked as a Leading Junior in Insolvency and Banking & Finance, and is appointed to the Attorney General’s Panel of Junior Counsel to the Crown. A former investment banker, she is described in directories as “incredibly impressive and a force to be reckoned with”, and a “highly intelligent and tenacious litigator” who is “also far more financially literate than most barristers”, and with “a very good commercial application”.  Her practice includes the full range of insolvency and restructuring matters, domestic and international.

Saaman Pourghadiri specialises in commercial disputes with a particular expertise in banking/financial services, civil fraud, insolvency, pensions and professional negligence matters. Saaman is recognised in the directories for commercial disputes as “very user-friendly, very approachable and very good commercially” and “great to deal with, very hard-working and clever. His attention to detail is fantastic.”  Saaman’s practice spans both domestic and international matters.

Find out more

Find out more about Outer Temple’s Insolvency and Restructuring and Banking practice on our expertise pages.

If you would like to discuss any of the issues covered in this article please contact the authors Andrew, Justina or Saaman directly or via their practice management team: David Smith on +44 (0)20 7427 4905, Matt Sale on +44(0)20 7427 4920 or Colin Bunyan on +44 (0)20 7427 4886 for a confidential discussion.

Banking during Covid-19, Covid-19, Legal Blog & Publications, Financial Services 9 Sep, 2020

Authors

Andrew Spink QC

Call: 1985 Silk: 2003

Justina Stewart

Call: 2010

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