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Coronavirus – Important Development for Companies and their Directors

On Saturday 28 March 2020 UK Business Secretary Alok Sharma announced temporary changes to the insolvency rules to assist businesses that were facing difficulty in paying their debts as a consequence of the impact of coronavirus.

The primary change that will assist Companies and their Directors is the proposed suspension of the wrongful trading rule. This is intended to allow Directors to pay employees and creditors even in circumstances where the Directors have concerns that the Company might become insolvent.  The wrongful trading rule, introduced by the Insolvency Act 1986, makes it an offence for Directors to continue to trade when they know that liquidation is inevitable but this will be temporarily suspended under the proposed emergency legislation.

A further development was the announcement that businesses undergoing a restructuring will be granted a temporary moratorium during which creditors will be prohibited from appointing administrators, with Mr Sharma saying on behalf of the government that the “overriding objective is to help UK companies which need to undergo a financial rescue or restructuring process to keep trading”.

These developments have been welcomed by the British Chamber of Commerce, who commented  “Companies that were viable before the outbreak must be supported to ensure they can help power the recovery when the immediate crisis is over. Cashflow remains an urgent concern for many businesses, so it’s vital that government support packages reach businesses and people on the ground as soon as possible.”

Legislation has not yet been passed in the above respect so the full details are yet to be published, but will be at the earliest opportunity, and the changes will retrospectively apply from the beginning of March 2020.

It is important to note that the changes are limited to the above, and the other “checks and balances” that exist to ensure Directors’ comply with their duties will remain. If you are a Director, and you have any uncertainty as to what will or will not be permitted during these unusual circumstances we are happy to advise on your situation. Please contact our litigation director – Llyr Davies, on 01792 776769 or at [email protected]