Covid-19 And Insolvency: The Case For ‘Light-Touch' Administration

Different countries have adopted various strategies to prevent or delay initiation of insolvency proceedings and protect businesses in the wake of the Covid-19 Crisis. This has previously been discussed here on this blog. To summarize briefly, efforts are being made to provide direct financial aid (by way of loans and grants) and/or steps are being taken by way of emergency legislation to prevent 'unnecessary' insolvency proceedings. The overall aim of these strategies is to provide businesses with protection, albeit temporary, from creditor action. The protection is based on the premise that in a post-lockdown period, businesses will be able to become fully operational and profitable again, and will then be able to absorb/pay debts accrued as a result of the lockdown. Although these strategies are commendable, companies should consider being proactive as wholly depending on financial aid and delay strategies runs the risk of being overly optimistic for two reasons.