Coronavirus (COVID-19) crisis—Is keeping calm & carrying on enough?

Coronavirus (COVID-19) crisis—Is keeping calm & carrying on enough?

Peter JM Declercq of DCQ Legal looks at what the coronavirus (COVID-19) crisis means for those working in the restructuring & insolvency (R&I) sector.


What does the coronavirus (COVID-19) crisis mean for those working in the R&I sector? In many ways it seems that coronavirus forces everyone back to basics, and the same applies for the R&I sector. While coronavirus certainly pushes all of us to a certain extent in unchartered territory, that, however, does not mean that existing knowledge, experience and expertise becomes useless overnight. To the contrary.

Denial and panic filing 

In the R&I sector, ‘denial’ of financial distress is one of the biggest obstacles to overcome and therefore tends to limit the available options. As coronavirus is likely to accelerate financial distress (even for those who previously were very confident that financial distress would not affect them anytime soon), it will be key to timely acknowledge the existence of financial distress and avoid any prolonged denial, because to do something meaningful about financial distress, it is essential that you first acknowledge its existence. In countries were the threshold for mandatory filing for insolvency is relatively low (such as for example Germany, see Practice Note Germany—restructuring and insolvency guide and Table comparing European directors' duties), there already has been a demand from the R&I sector to (temporarily at least) relax the rules in response to coronavirus. This seems sensible to avoid a quick rise of unplanned ‘panic filings’ by businesses as a result of coronavirus to avoid the incurrence of personal (criminal) liability. Such steep increase of panic filings is not only likely to result in value destructive ‘fire-sale liquidations’, but it may also trigger a negative chain reaction in that it may result in immediate financial distress of stakeholders of those ‘panic filing’—businesses as well and so on. Panic filings also severely limit the time that is required to attempt in earnest a ‘life saving’ restructuring or an orderly ‘non-contagious’ winding down of non-viable businesses.


Coronavirus requires a growing number of us to go into self-isolation. While these are certainly drastic measures, in our digital world it does not mean that communication has to stop completely as well. For businesses in financial distress continued communication is of paramount importance, in particular with key stakeholders (such as financiers and suppliers, but also the work force of the affected business).
But what can financiers, such as banks, do? The Central banks’ emergency decisions in various jurisdictions to further cut interest rates should facilitate domestic banks with helping businesses in financial distress due to coronavirus in the first instance with ‘buying time’, which is essential to avoiding panic filings.

At present it is still unclear how long it will take all of us to sufficiently control coronavirus. As a result, it is difficult to predict today how permanent certain effects we are seeing now (such as steep oil price reduction, stock markets in turmoil, significant restrictions on non-essential travel, gatherings of more than 10 people, holidays, sports & other entertainment, and school closures) will be going forward. That information is, as one will appreciate, important to assess if a business currently in financial distress is nevertheless viable and what (if any) adjustments to the business model can be made by when to continue trading. Not all businesses that now face financial distress as an immediate result of coronavirus will (or should) survive, but it would certainly be a great waste if at least a very basic assessment of viability is denied now to financially distressed businesses because of—in essence—a paralysis caused by coronavirus.

Keep calm and carry on

So what should you do if your business is now facing severe financial distress as a result of coronavirus? Hiding or doing nothing at all, is clearly not the answer. Start with making a proper inventory of your present (financial and business) situation and come up with realistic forecasts of your immediate needs, document as well as possible your thought and decision process in doing so, seek expert advice and agree with these advisors assistance on manageable arrangements, armed with the inventory, forecasts, and (initial) expert advice, engage with your (key) stakeholders. Insist on making decisions as much as possible on an informed basis and resist as much as possible being forced in decisions on any other basis. 


Is coronavirus a ‘Force Majeure’ and if it is, what does that mean (see Practice Note: Discharge by force majeure)? What (if anything) can be claimed under existing insurances? What (if any) rights exist against the government to benefits or reimbursement of exceptional costs directly caused by coronavirus? A lot of valid questions on which the answers are developing as we speak.

Coronavirus requires a coordinated response from all of us. This is no different for businesses that are now facing financial distress as an immediate result of coronavirus. While each business has its own particular issues, each business in financial distress as an immediate result of coronavirus also shares issues with other businesses in the same position. Therefore, each financially distressed business as well as the (key) stakeholders of such business, should, where possible, also try to coordinate matters, on a sector, industry or geographical level. In that context, might it be useful to consider working on the creation of ‘ad hoc protocols’ for that purpose, using the ‘cross-border protocols’ we frequently use in cross-border insolvency situations as a source of inspiration (see Practice Note: Cross-border protocols in insolvency or restructuring)? 

Already, we can see that the severe measures of self-isolation have at the same time ignited an enhanced sense of community. We are in this together, and need to help each other where we can. While in lock-down, the Italians have started to sing opera serenades to each other from their balconies.  


It is in nobody’s interest for an excessive number of businesses to fail now as an immediate consequence of coronavirus without any meaningful opportunity to consider restructuring. That means despite the crisis, we do need to ‘keep calm and carry on’. What that means in the R&I sector has been highlighted in this article. For now, and as a start, that may be enough. However, the large scale of coronavirus and its international character requires individual governments to both take action and co-ordinate their actions with other governments. At present that coordinated action has not yet specifically focused on the R&I sector, but going forward this may very well be required. In the meantime, it seems sensible for each business that faces financial difficulty as an immediate result of coronavirus to keep an active open mind about any coordination opportunities it might be able to pursue, alongside dealing with the case specific issues of its own situation, possibly using ‘ad hoc protocols’ to be created for that purpose. 


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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.