Following its announcement of an unprecedented package of measures to support businesses and the economy through the COVID-19 crisis (including CBILS) the Government has now proposed to relax insolvency legislation and procedures. This is to provide further protection to companies (and their directors) in, or close to, financial distress as a consequence of the pandemic.
Advice relating to these measures can be given through our COVID-19 Legal Support Hub.
Wrongful Trading Provisions
In particular, the Government intends to suspend the wrongful trading provisions (set out within Section 214 of the Insolvency Act 1986) for three months (retrospective from 1 March 2020). As a result, company directors will not face the risk of being ordered to personally pay compensation for trading when there is no reasonable prospect of avoiding insolvency.
Changes to Insolvency Legislation
These changes may reassure directors concerned at the potential implications of accepting financial assistance from the Government in these times of great uncertainty. All directors should still be mindful of their duty to act primarily in the best interest of creditors in an insolvency situation, and that other specific types of transactions remain prohibited under the Insolvency Act (such as preferences, transactions at an undervalue, and defrauding creditors).
In addition, the Companies Court has adjourned all winding up petitions that were due to be heard last week for between 12 to 19 weeks. The Government will also campaign to impose a formal moratorium preventing any further petitions being presented for at least 90 days.
If implemented, this will provide a further reprieve for companies at risk of compulsory liquidation and provide those companies with the opportunity to take professional advice on whether the business can be rescued/restructured (or even voluntarily liquidated) whilst maintaining a degree of control over that process.
Speak to a professional
If you have any questions at all about what these new announcements mean for you and your business, do not hesitate to speak with our corporate team. They are staying on top of all of the latest announcements and can offer sound, up-to-date advice. Email Rhian Owen with any queries or fill in our contact form and we will be in touch.