It is some time since our last bulletin, and it is a very different world. Perhaps one way of encapsulating this year will be Dickens' words: "it was the best of times, it was the worst of times". Many of you, like ourselves, will have had to adapt to remote working and operating in a changed environment as well as coping with difficult personal circumstances. We have appreciated the ongoing support of our clients. In our turn we have been pleased to keep transactions running, deal with the various government backed loan schemes and resolve disputes and other problems.
Our coronavirus hub continues to provide updates on key issues for businesses and personal lives. This bulletin concentrates more generally on issues relevant to the banking and finance field. If you have any queries on the topics in this bulletin or you would like us to cover any particular issues in the future, please get in touch Gwen Godfrey, or your usual contact at DMH Stallard.
Global transition roadmap for LIBOR
Preparations continue to be made for the replacement of the benchmark interest rate, LIBOR, by the end of 2021. The Financial Stability Board (FSB) published its Global Transition Roadmap in October 2020. This sets out the steps which financial institutions and other users of the rate should be taking to ensure an orderly transition.
By now all existing LIBOR based agreements should have been identified and a project plan developed to deal with them, including communicating with customers with LIBOR based agreements extending beyond end 2021, of the need for transition and the steps being taken to move alternative rates.
By the end of 2020 lenders should be able to offer non-LIBOR linked loans or agreements containing language for conversion by end 2021, for example if systems are not already ready to deal with an alternative rate.
By mid 2021, amongst other things, lenders should have assessed all their agreements to determine which need to be and can be amended by end 2021 and made plans for this.
Corporate insolvency and governance - permanent and temporary changes
The Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force on 26 June 2020 (with some backdated provisions) and subsequent related regulations have been issued. Its objective was to provide businesses with breathing space to continue trading, achieved by introducing greater flexibility to the insolvency regime, temporarily suspending parts of it and temporarily easing company filing and meeting requirements.
Some of the changes were permanent - for example a new moratorium procedure, a new restructuring plan (which has already been used by Virgin Atlantic) and wider restrictions on termination clauses in supply contracts where a company is in a restructuring or insolvency procedure. Others were temporary, such as the wrongful trading "licence", a limit on winding-up petitions and relaxations regarding the timing of AGMs and deadlines for certain filings at Companies House.
We have been giving Zoom presentations on CIGA 2020 to clients and contacts. If you would be interested in one, please contact Tyne Harman.
Apart from reviewing loan documents to see if they are based on LIBOR and will need amendment prior to the end of 2021 (see above), this may be a good time for a lender to review the scope and effectiveness of security held from customers, particularly those identified as potentially being in financial difficulty.
As well as reviewing the documents themselves and the powers of the security providers to grant them, checks can be made at the relevant registries. This will ensure the documents are registered where necessary and will reveal if any other security has been taken by third parties which may need to be dealt with by a priority deed.
Any basis on which the security might be challenged can be identified. The various enforcement options can also be explained. There may well be ways to remedy any problems identified, as well as to highlight any further documents or steps to be taken - for example where a debenture creating security over all the assets of a company has been taken, but legal charges have not been taken and registered where the company has subsequently acquired property.
If you require any information on the scopes of security reviews, please contact Katie Layton.
Consumer credit and COVID-19
The pandemic, the lockdown and the various restrictions have affected everyone in some way. Whilst there has been a positive effect on businesses in certain sectors, overall it was clear that this would not be the case for all businesses and that there would be financial hardship for many individuals.
The Financial Conduct Authority (FCA) has been issuing guidance to those whom it regulates to mitigate the position for individuals and other consumers. Since March 2020 the FCA has issued guidance on mortgages; credit cards, overdrafts and personal loans; motor vehicle finance, high cost short term credit, non-motor hire purchase and pawn contracts.
As with CIGA 2020, and the regulations issued under it (see above) the deadlines in the guidance have been extended. Given the current position, it seems likely that further guidance will be issued in due course. For further information please see the publication section of the FCA's website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.