Introduction
The COVID-19 pandemic presents directors of all business entities1 with a profound and unprecedented set of challenges. Now more than ever, key decision-takers in businesses appreciate that their actions will be carefully judged following the crisis. Scrutiny of their actions will come from a range of interested and affected parties including creditors, employees, trades unions, landlords, customers, regulators, insolvency practitioners and possibly even law enforcement.
Wrongful trading laws have been suspended. But other relevant laws remain unchanged. Critically directors remain subject to the creditors’ interest duty. Read our article which examines the current position and highlights other key issues to be kept firmly in mind by directors and those advising them in these challenging times.
The Business Secretary Alok Sharma has proposed a relaxation to the current insolvency rules, in the hope that the measures will give companies some breathing space in the face of COVID-19.
Suspension of wrongful trading rules
The proposed changes include a temporary suspension of wrongful trading rules, which Alok Sharma suggested would apply retrospectively from 1 March 2020 for an initial period of three months.
COVID-19 has had an unimaginable impact on the corporate world. The assumptions on which parties approached corporate transactions like Joint Ventures (JV) have often been blown off course. Businesses that are party to JVs must monitor not just themselves but the condition of their JV partner and the impact that they may have on the JV. There is no 'off the shelf' Joint Venture Agreement (JVA). Analysing the legal and practical rights and constraints in each JV is therefore essential.
The Government has launched a number of initiatives to assist companies and businesses to trade through the current financial stress. But what should directors still be aware of as they steer their organisations through these unprecedent times?
Cash flow and current and future liquidity are now real concerns for many businesses during this COVID-19 pandemic. Increasingly, the attention of directors and the wider economic ecosystem is turning to consider the issues of approaching insolvency and the duties of directors.
In line with the current approach of the UK Government to support businesses, on Saturday, 28 March, the Business Secretary, Alok Sharma, announced that UK wrongful trading insolvency laws are to temporarily change to help give businesses and directors some "breathing space".
On 28 March, UK Business Secretary Alok Sharma announced that the rules relating to ‘wrongful trading’ will be suspended on account of the issues that Coronavirus Disease 2019 (COVID-19) presents.
Directors have a duty to act in the best interests of the company. A director has the following general duties under the Companies Act 2006:
In this week’s update: Guidance on virtual board and committee meetings, updates and guidance on AGMs, pre-emption principles are relaxed and a few other items.
This week, in coronavirus-related news