Guest editorial: Building COVID‐19 resilient insolvency frameworks

• Date: 01 June 2020
• Author: Stephan Madaus,Gert‐Jan Boon
• DOI: http://doi.org/10.1002/iir.1377
• Published date: 01 June 2020

EDITORIAL

Guest editorial: Building COVID-19 resilient

insolvency frameworks

1|STAY HOME, STAY SAFE

At the time this guest editorial was written, the world has faced an unprecedented course of

events with the outbreak of the COVID-19 (corona) virus. In a short time, this virus has reached

pandemic status with cases of corona infections reported on all continents. Justified by the med-

ical urgency, governments have prompted extraordinary measures to stop its spreading. Under

the phrase “stay home, stay safe”, physical contact must be prevented, people should work from

home, but also, businesses are closing down and cities and sometimes countries are in lock-

down. These measures aim to protect the lives of many. However, the economic consequences

of both the spread of the virus and public health measures cannot be overlooked. In a matter of

weeks, large parts of the global economy have experienced a major slow down or effectively a

shut down. This viral crisis extends beyond human lives, impacting also the livelihood of many

businesses, their entrepreneurs and employees.

Economic uncertainties remain high these days. It is unclear to what extent the spread

of the virus must be under control before market activities are allowed to resume. It is

uncertain as to how long it will take before a vaccine will be available. The duration of cur-

rent measures is unknown and impossible to calculate ex ante. Additional measures

imposed for public health reasons are not yet precluded. The situation directly impacts busi-

nesses of all sizes and throughout various sectors. It hits both already troubled and healthy

companies. A greater number of businesses, especially those of micro-size, are closed for

weeks with no or little revenue. The lockdown also hits larger companies, in particular in

sectors connected to leisure and travel or depending on constant supply of goods from or to

abroad. At a macro level, a global recession has already been forecast, impacting the econ-

omy in the months, year or even years coming.

The current shock has the peculiar effect that many companies with a viable and sound

business model at the beginning of 2020 are suddenly confronted with imminent insolvency

and may be obliged or at least prompted to file for insolvency proceedings. Here, insolvency

practitioners and courts face new challenges. Going-concern assessments are burdened with the

uncertainty of a global crisis and cause debtors to suffer a piecemeal liquidation. Under current

distressed market conditions, there is a significant risk of sales at an under value, restricting the

ability of procedures to maximise value for creditors. The filter function of insolvency frame-

works, functional in normal market situations, cannot work as designed and produces an

unnecessary amount of liquidations as a consequence of the exceptional economic situation

caused by the COVID-19 crisis. Temporary adjustments are indicated.

Received: 30 March 2020 Accepted: 18 May 2020

DOI: 10.1002/iir.1377

© 2020 INSOL International and John Wiley & Sons Ltd

Int Insolv Rev. 2020;29:155–158. wileyonlinelibrary.com/journal/iir 155