The Impact Of COVID-19 & The Corporate Insolvency & Governance Act 2020 On Insolvency & Divorce Proceedings

The economic turmoil created by the coronavirus pandemic has undoubtedly had a significant impact on many businesses. Those that once thrived are now facing significant financial difficulty and potential insolvency as a result of the unforeseen and lengthy impact of the pandemic.

Business interests in divorce and separation proceedings

In divorce proceedings, the business interests of spouses can be considered by the Court when deciding how the assets of a marriage should be divided.

We often see disputes as to the value of businesses in the context of divorce as one party might seek to undervalue their interest to support their argument for more of the “copper-bottomed” realisable assets. Sometimes one party might seek to undervalue a business to the extent that would render that business insolvent.

The impact of COVID-19 on business interests in divorce proceedings

The coronavirus pandemic perhaps means there is more risk of business interests being undervalued as it gives the owner of those interests an excuse or reason to down play the value of what might have been an otherwise valuable asset. Whilst it might well be the case that a business has been detrimentally affected by COVID-19, it may be that further investigation is required.

The Court has a wide discretion when making orders relating to the parties financial circumstances. It can:

• Determine the future shares of both parties in the business;
• Order the transfer of those shares; or
• Even a sale and division of the proceeds.

As a result, it is important that the correct value is attributed to a business, that consideration is given to whether capital can be extracted from it and whether it is required as an income source for one or other of the parties. In many cases, the Court might be reluctant to order a sale of a business if that would mean that it would render one spouse without an income.

Insolvency and divorce during the coronavirus pandemic and the effect of the Corporate Insolvency and Governance Act 2020

Insolvency in the context of divorce is complex and it is essential that early legal advice is sought. This is even more important given changes in legislation as a result of the pandemic.

The Corporate Insolvency and Governance Act 2020 came into force in June 2020 as part of the Government’s coronavirus business support package. It places temporary restrictions on the presentation of winding-up petitions which have now been extended to 31^st December 2020. This means that creditors of a company would be prevented from applying to the Court to have a company wound up until 1^st January 2021.

It has always been very difficult for trustees in insolvency or liquidators to overturn financial orders made by the family Court and quick action in securing legal advice in respect of potential divorce proceedings where business assets are involved could prove very important and potentially dramatically improve the prospects of recovering assets on divorce.

It is also more important than ever that the correct value of a business is established in divorce proceedings and that consideration is given to the type of business, whether it is in a sector that is less able to adapt to the impact of the coronavirus and what support is available from the Government. All of these issues could impact on whether a creditor is successful in obtaining a winding up petition.

Again, it is important that expert advice is obtained quickly so that you are able to explore all of the options available.