The UK Government announced on Saturday 28 March 2020 that it intends to amend UK insolvency law to suspend the offence of wrongful trading by directors of UK companies and to give UK companies the breathing space to allow them to keep trading while they explore options for rescue.
Background
Current insolvency rules stipulate that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts. These rules will be suspended.
Due to the COVID 19 pandemic (hereafter, “COVID-19”), the closure of numerous shops and other businesses has been ordered by the authorities. Other shops and businesses are suffering losses in sales, some of them severe. As a result, many tenants will find themselves in an economic predicament and will be unable to pay their rent, at least temporarily. The question has therefore already been raised several times as to whether tenants are still obliged to pay rent during the current situation.
*This information is accurate as of 9.00 am Wednesday 25 March 2020 and is subject to change as this situation evolves.
A tenant's solvency, or its risk of insolvency, is not a novel concern for landlords and tenants alike. But the unprecedented COVID-19 pandemic is putting corporate tenant solvency risk into the hot spotlight arguably like never before, and for good reason.
The German federal government is currently preparing new legislation to reduce the economic fallout from the COVID-19 pandemic. This news alert deals with the proposed changes to the insolvency and restructuring related German regulations.
Directors will soon be free to make decisions to trade on even insolvent entities, and incur debts in the ordinary course of business, with the passing of the Coronavirus Economic Response Package Omnibus Act 2020 last night and Royal Assent today. The Act is intended to encourage business to continue trading free of risk that insolvent trading laws – which prevent directors of insolvent companies incurring fresh debt – would impose a personal civil and criminal liability on them. There are also changes to statutory demands and debtor's petitions.
In an unprecedented move the Federal Government has announced temporary changes to some aspects of existing insolvency laws as part of the plan to try and keep businesses operating during this unique health crisis time.
Insolvent Trading
“In this world nothing can be said to be certain, except death and taxes.” - Benjamin Franklin
Summary and Key Takeaways
ASIC is becoming more serious and more active and will take action against directors if there is su cient reason to, so insolvency practitioners should consider all possible actions/recoveries fully in any report to ASIC.
A company's financial distress presents a challenge for its directors and officers of large and complex financial services companies and can raise a range of difficult issues, including potential liability for insolvent trading, which potentially exposes directors both to civil and criminal consequences under the Corporations Act 2001(Cth).