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Insolvency and COVID - A brief note for Councils

Publish date: 08/06/2020

A short guidance note prepared by Gavin Milnthorpe, Head of Commercial and Property at Hertfordshire County Council

A short guidance note prepared by Gavin Milnthorpe, Head of Commercial and Property at Hertfordshire County Council

Insolvency & COVID

No-one really knows what the world will look like post-COVID, but one things seems fairly certain…that numerous businesses and other enterprises are going to fold.

Many of those business will be funded by, supply services to, or be tenants of your council. Whilst councils are doing their utmost, in line with central government guidance, to keep businesses afloat and to ensure supply chains remain intact, the sad fact is that some businesses will fail.

So, in the interests of protecting the local taxpayer, it is sensible to start thinking about the issues now. In my experience, councils tend to be quite passive in an insolvency situation, waiting patiently for the end result.

  1. I hate to use the phrase, but "stay alert." Keep a regular eye on Companies House and be ready to act.
  1. Make use of your existing contractual rights, such as financial distress notifications, termination, suspension, set-off, etc.
  1. Limit your exposure. This isn't particularly helpful where you have existing contracts but it may well be relevant if you are entering into contract extensions or letting new contracts. Could you make arrangements to pay in arrears, or to stagger payments in instalments? And whilst some contractors seem to think that the government PPN means that councils are obliged to hand over wads of cash, this is not the case. The PPN allows councils to negotiate a reasonable path, dependent upon the circumstances.
  1. Enforce your security (if you have any) or consider asking for security where you are being asked to renegotiate a deal. Otherwise, be mindful of your placing in the order of priority.
  1. Be an effective creditor. Lodge your proof of debt together with the evidence. Be aware that any moratorium prevents enforcement of a right, it doesn't extinguish it. Make yourself known to the insolvency practitioner. As a creditor you have rights, dependent upon the type of procedure and your level of exposure. You will also want to take a commercial view as to the likely level of return. This will determine how involved you get in the insolvency process.

And, of course, please feel to contact me if I can be of any assistance.

Gavin Milnthorpe
Head of Commercial and Property | Legal Services | Resources

Hertfordshire County Council
T: 01992 588527
E: gavin.milnthorpe@hertfordshire.gov.uk