As a result of the coronavirus crisis, the government has also announced that it will be introducing new insolvency legislation with the intention of temporarily suspending the ‘wrongful trading’ rules which apply to insolvent companies.
- Temporary Change to Existing Legislation: The Bill will temporarily relax the threat of personal liability for wrongful trading from company directors while they make their best efforts to continue to trade during the initial period of the COVID-19 pandemic.
- Bill Provisions to Note:
a. The provisions in the Bill do not provide a blanket suspension of the wrongful trading provisions.
b. When determining the personal liability of the director (the contribution [if any] to a company’s assets), the court is to assume that the director is not responsible for any worsening of the financial position of the company or its creditors that occurs during the relevant period (1 March to 1 June 2020).
- Calculation of Losses: Whilst directors may not be liable to contribute to the losses in this period, losses incurred in the periods before and after COVID-19 still remain a factor. Also, directors may still be subject to action for other breaches of duties during the COVID-19 period.
- Seek Advice: It is imperative therefore that directors use this new’ breathing space’ to seek the specialist advice they need from a licensed insolvency practitioner to either restructure their business and make it viable to trade on post COVID19 or if this is not possible, take the appropriate steps to cease trading.
- Understand Your Options Fully: Take time to understand the options available to you and your business – speak to a licensed insolvency practitioner and find out what options are available to you.
- SME Support Forum Guidance & Support: In these stressful times if you feel you would benefit from support for your business or for your own personal position (e.g. as a director) then we are here to help