Company insolvency

When is a company insolvent?

In general terms, a company is insolvent if it is unable to pay its debts as and when they fall due. 

A company may also be considered to be insolvent if the value of its assets is less than the amount of its liabilities, taking into account contingent and prospective liabilities.

Covid-19 has introduced significant uncertainty to any assessment by directors about their company’s solvency.

Proposed changes to UK insolvency laws aim to support companies under pressure due to COVID-19.

On 28 March 2020, the UK government announced a number of reforms to UK insolvency laws:

On Saturday 28 March 2020, the Government announced significant changes to UK insolvency law to help companies and directors weather the economic storm caused by the Coronavirus (COVID-19) pandemic.

As part of a range of measure to help companies, the Business Secretary, Alok Sharma, announced:

The UK Government has announced wide-ranging emergency legislation in response to the Coronavirus crisis, in an attempt to reduce the burden on business and allow them to carry on trading during and after the pandemic. Some of the changes (other than the one on wrongful trading) were already intended following a consultation process that concluded in 2018 but are now being fast tracked.

The Financial Conduct Authority, the Information Commissioner’s Office and the Financial Services Compensation Scheme have issued a joint statement warning insolvency practitioners to be careful when handling personal data.

The Joint Statement says that the FCA, ICO and FSCS are aware that some IPs and FCA - authorised firms have attempted to sell clients’ personal data to claims management companies, where it is likely claims for compensation will be made to the FSCS.

The UK Government has announced that:

It will temporarily suspend the offence of wrongful trading by directors of English companies for 3 months Amend insolvency laws to bring in more debtor friendly style processes where English companies can continue to trade while negotiating a restructuring solution with their creditors.

As ever, we await full details and legislation.

Wrongful Trading Suspension

As most businesses, landlords and property solicitors will now know, s.82 of the Coronavirus Act 2020 (“CA 2020”) means there can be no forfeiture for non-payment of rent until July 2020, possibly later (“the relevant period”). But forfeiture has never been the only option open to a landlord whose tenant isn’t paying rent. The government lockdown was announced just two days before the March quarter day, with the inevitable consequence that many businesses did not pay the March quarter day rent.

On 28 March 2020, the Business Secretary, Alok Sharma, announced new insolvency measures to support companies under pressure as a result of the COVID-19 outbreak. In summary, the government is due to: (i) implement the landmark changes to the corporate insolvency regime that were announced in August 2018 (as discussed in Weil’s European Restructuring Watch update on 7 September 2018); and (ii) temporarily and retrospectively suspend wrongful trading provisions for three months.

Proposed Changes to the Corporate Insolvency Regime

Introduction

On Saturday (28 March 2020) the UK Government announced certain changes to insolvency laws in response to COVID-19, intended to help companies and directors.

There are two aspects to the changes:

On Saturday 28 March, the Secretary of State for Business Energy and Industrial Strategy announced changes to the insolvency regime with the aim of keeping viable companies trading through the unprecedented challenge of the COVID-19 pandemic.