The Coronavirus Act 2020 is now in force and Section 82 of that Act effecting the postponement of the landlord’s right to forfeit for non-payment of rent is causing consternation amongst both landlords and tenants as they seek to navigate through these uncertain times.
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
Despite what seemed like three months ago to be something only happening a very long way away, and would hopefully dissipate as quickly as it started, the Coronavirus pandemic has well and truly arrived on our shores.
Daily news reports are revealing the far-reaching effects of the outbreak, the likes of which have not been seen for generations. In what form, and to what extent, the health, financial and social implications will be in the aftermath of the pandemic remain an unknown quantity for us all.
Given the material impact that coronavirus is having on businesses, on March 28, 2020 the government announced that legislation would be forthcoming amending UK insolvency laws to:
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
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.
Directors' Duties and Related Matters, in the Context of COVID-19
Updated: 02 April 2020
Scope And Purpose of This Note
This note summarises the duties that directors of companies incorporated in England and Wales are subject to.
This note explains those duties, and matters that directors should consider in relation to those duties, in the context of the developing coronavirus disease 2019 (COVID-19), commonly known as the "coronavirus" or simply, COVID-19, pandemic.
In the current period of flux, lenders should review their finance documents regarding protections and/or vulnerabilities; and where exposed to industries particularly affected by the COVID-19 outbreak may consider (i) invoking provisions to demand early repayment and/or to preclude further lending; and (ii) whether there is material benefit in doing so. They should also consider pre-emptive steps with a view to staving off critical defaults.
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:
Retrospective suspension or relaxation of wrongful trading
New restructuring procedure and new temporary moratorium
Business Secretary Alok Sharma has announced that the government will be introducing measures to “improve the legal options for companies running into major difficulties. The overriding objective is to help UK companies, which need to undergo a financial rescue or restructuring process, to keep trading. These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends”.1
The temporary amendments to the insolvency laws which are being considered include: