As you may be aware, in response to the coronavirus epidemic the Government has announced changes to the existing insolvency laws around the continuity of businesses that may provide some much-needed comfort for directors and business owners that are feeling concerned. 

As the law currently stands and in accordance with section 214 of the Insolvency Act 1986, once a director of a company concludes that there is no reasonable prospect of their company avoiding insolvency then the directors have a duty of care to protect the interests of not only the creditors, including HMRC, but all stakeholders to ensure that they take every step to minimise the potential loss to the company’s creditors.

 In the event the directors fail to comply with their statutory duty, a court can and often will order the directors to contribute to any result and shortfall in the company’s assets, as the court thinks fit. 

The changes introduced mean that there will be a suspension of the Wrongful Trading provisions effective as from 1 March 2020. 

These new provisions will initially last for three months but the government has promised to keep this under review, pending the length of the pandemic. 

This does not mean that directors who act fraudulently and or without due care for the interests of creditors and other stakeholders cannot be made accountable in the future, but it softens the application of the rules where the insolvent situation arises solely by reason of the epidemic – and the financial impact of the measures that are enforced on the business by the government response. 

The temporary suspension of the Wrongful Trading provisions will remove the potential threat of personal liability for that insolvency offence during the epidemic. It is nevertheless important to keep in mind that a failure to act reasonably and responsibly in the circumstances could still give rise to claims of misfeasance. 

Going forward we suggest that proper board minutes and notes are maintained by directors in relation to their decision-making processes – especially if they would have still been uncertain of the company’s financial strength had the coronavirus epidemic not arisen. 

The Government is also looking at other legislation to bring forward in order to assist businesses and they are currently canvassing our licensing bodies and other business organisations involved in restructuring. The reforms will enable companies undergoing a restructuring process to continue to trade and extend the current ten day moratorium available by Administration Notices to as much as ninety days, enabling companies to continue to trade whilst a rescue plan is put forward. At this stage, we are awaiting further Government announcements. 

We will continue to keep our referring accountants and clients updated regularly and if there is any particular subject with which we can assist then please don’t hesitate to contact us. Like most businesses and in accordance with Government advice we are working remotely but can be contacted on our landlines or by mobile. All the partner’s email addresses and mobile numbers can be found here