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

Following the outbreak of a global pandemic unprecedented in recent memory, the UK is now reeling from the devastating effects of the coronavirus. Small and medium-sized businesses throughout the nation will already have been forced to come to terms with this new reality, through a combination of staff illness, forced closures, supply chain disruption and loss of business.

On 28 March, 2020, the UK Government announced that it intends to amend insolvency law to give companies breathing space and allow them to keep trading while they explore options for rescue. The changes include (a) a temporary suspension of wrongful trading by directors of UK companies for three months commencing on 1 March, 2020 and (b) the in troduction of a moratorium for companies in financial difficulty preventing creditors enforcing debts for a period of time. Full details of the proposed changes are yet to be published.

Wrongful Trading

To assist businesses dealing with the economic impact of the coronavirus (COVID-19) pandemic, on March 28, 2020, the UK government followed in the footsteps of countries including Spain, Germany and Australia and announced certain changes to UK insolvency law.

This article summarises the key changes the UK government is proposing to existing insolvency laws, and considers the key restructuring tools available to assist companies during this unprecedented and challenging time.

Wrongful Trading Suspension

As businesses seek to adapt to deal with the financial impact of COVID-19, boards of directors have been faced with the difficult decision of having to file for insolvency or take steps to preserve business continuity and live to fight another day. Understandably directors' duties is a topic that has come keenly into focus with directors wishing to ensure that, whatever steps they take, they do not incur personal liability.

In light of the ongoing COVID-19 pandemic, on 28 March 2020, the Government announced the suspension of s.214 of the Insolvency Act 1986. This section imposes personal liability on directors found to have over-traded while a company was insolvent (so-called ‘wrongful trading’). By removing the risk of personal liability, the Government is providing directors with the personal protection they need to allow their businesses to continue trading through the pandemic. There are, however, likely to be negative consequences arising from the suspension, including for creditors.