Insolvency rules relaxed as the impact of COVID-19 worsens

The Government announced on Sunday that there would be a temporary suspension of wrongful trading rules for three months to be applied from 1st March 2020. This means that company directors will not be personally liable for their decisions during the COVID-19 outbreak. The aim is to assist directors to keep their businesses afloat without the threat of personal liability.

What is wrongful trading?

Under the Insolvency Act 1986, wrongful trading makes it an offence for the director of a company to continue trading where they are aware that the company will not be able to avoid liquidation. This means that where it is clear that your company is going to fail financially, you should make the decision, as director, to halt all trading. Under normal circumstances, wrongful trading can render the director personally liable for the company’s debts.

What will the suspension of the rules achieve?

The suspension of the wrongful trading rules will enable directors to continue paying their staff and suppliers even if there are fears that the company could become insolvent. It is hoped that this will help prevent companies from collapsing for no good reason. The overriding intention is to support companies through the COVID-19 and help ensure that companies “emerge intact” from the other side of the pandemic.

The British Chamber of Commerce has commented on the Government’s decision and considers that the move will be welcomed by most companies. It is clear that companies that were viable before COVID-19 should be supported so that the length of recovery following the pandemic should be shorter. COVID-19 is already having significant impacts on large sections of the economy including businesses operating in travel and hospitality. The British Chamber of Commerce has confirmed that: “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.”

How can we help?

Our specialist advisors both in the Banking and Finance Litigation team and the Insolvency team here at Ellis Jones will be happy to assist you in reviewing your company’s financial position and advising on suggested next steps.

If you have concerns or queries surrounding the above, please do not hesitate to contact our Banking and Finance Litigation team or our Insolvency team for a no-obligation initial chat. Contact us on 01202 057733 or by emailing banking@ellisjones.co.uk or insolvency@ellisjones.co.uk.