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Navigating the impact of COVID-19

How to manage insolvency-related claims

The COVID-19 outbreak has the potential to trigger the largest disruption to the world economy since the Lehman collapse.

Financial stress and insolvency could arise from a combination of:

  • supply-side issues – delay or cancellation of supply contracts;
  • demand-side issues – a sharp reduction in trade/consumer spending; and
  • a consequent tightening of credit – banks calling debt/reluctant to rollover debt.

The speed at which the situation develops, and the magnitude of any distress, will vary between jurisdictions.

For example there has not been much credit tightening in Asia yet, but there appears to have been in Europe.

The rise in insolvencies brings with it an increased potential for litigation, with the following types of claim possible:

  • Claims by liquidators and other officeholders against directors for breaches of duty/trading while insolvent.
  • Claims between shareholders under joint ventures.
  • Claims arising from fraud (a typical partner of insolvency).
  • Claims under ISDA and finance documents.
  • Claims by competitors relating to bailouts (eg unlawful state aid).
  • Claims arising from contentious restructurings/liability management exercises.
 

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