COVID-19 and Directors Duties

Corporate Insolvency

Unprecedented times call for unprecedented measures and that’s why the Government are introducing temporary procedures to the Insolvency Act 1986.

The new guidance on how UK businesses will be assisted to continue trading through these challenging times should provide some assurance to directors who are faced with difficult decisions.  Business Secretary, Alok Sharma, has proposed changes which are intended to give companies breathing space and if necessary, keep trading whilst they explore options for rescue.

Wrongful trading

The government has announced there will a temporary suspension of wrongful trading provisions.  Initially this will be for 3 months but could be longer.  Wrongful trading concerns directors continuing to trade a company at a time when they knew, or ought to have known, that formal insolvency was unavoidable.  They can be made personally liable for the losses in that period. Directors need to be aware that there are no other relaxations in respect of directors duties etc.  It is unlikely that the changes to wrongful trading will validate behaviour that is reckless.

Bankruptcy petitions

Under a standing arrangement with HMRC, no bankruptcy order will be made on HMRC petitions currently listed for hearing. On the hearing date, and without attendance of HMRC or the debtor, the Judge will order the petition to be relisted after 12 weeks. The relisted date will be sent to HMRC. The debtor and any opposing or supporting creditors will be notified by HMRC of the relisted hearing date. The only exception to the arrangement is that HMRC will continue to ask, on paper, for dismissal or withdrawal of the petition where the debt has been paid.

Three months on…May 2020

Whilst there could be a further extension to the suspension period it is currently due to end in May 2020.  What happens at the end of May remains to be seen but companies will need to consider their options very carefully:

  • Review the business’s financial position regularly to assess whether avoidance of formal insolvency is realistic.
  • Consider what is in the best interests of the company and, where appropriate, its creditors and keep records of decisions made.
  • Being responsible with further credit and the long term strategy for repayment.
  • Create a plan to highlight vulnerable areas of the business and how you will deal with them.

If you or your business are facing issues associated with insolvency and need help please contact  Kathryn Maclennan or Richard da Roza or call 01254 268790 / 01204 527777.