The changes?
On Saturday, during the Government’s daily Coronavirus update, it was announced that it would shortly legislate to:
The UK Government has announced changes to the existing UK insolvency laws in order to ease pressure on companies and give them breathing space to trade through the COVID-19 pandemic.
On Saturday 28 March, Secretary of State for the Business, Energy and Industrial Strategy, Alok Sharma, announced a proposal for the urgent reforms to UK insolvency law, designed to protect companies and their directors during the COVID-19 outbreak.
Wrongful Trading (section 214 Insolvency Act 1986)
It was announced that there would be a temporary suspension of section 214 Insolvency Act 1986 in relation to wrongful trading.
When is a director a director? At first glance this may appear to be a facile question. Why would individuals who only carry the title “director” fall within this group? Surely a director must be someone who has been formally appointed as a director?
Well, yes and no. For instance, someone who is involved in the day to day management of a business, but has not been formally appointed as a director or someone who tells the board what to do may also be considered to be a director for the purposes of company law.
The ILA Technical Committee, in conjunction with the CLLS, has produced the attached briefing note that reminds practitioners and businesses of the flexibility of a UK administration to stabilise, protect, and, if necessary, restructure companies.
As a direct result of the restrictions imposed by the Government on us all in response to the COVID-19 pandemic, many companies have suddenly and unexpectedly found themselves in a position where they are unable to pay their suppliers and are therefore insolvent on a cash flow basis.
RAAs are a statutory restructuring mechanism which operate by apportioning the departing employer’s share of liability between it and remaining employers. As an RAA can be entered before the insolvency process is initiated, RAAs can permit corporate restructuring in response to financial hardship without triggering the departing employer’s insolvency.
- Talk to your contracting partners about any difficulties that have arisen or that you anticipate might arise. Everyone knows that unanticipated issues are going to get in the way of normal business. So address them head on. Pretending that they don't exist isn't going to be of any help to you or your business partners.
- If you are struggling financially take advantage of the government support. Our website provides guidance on how to access that support. Speak to your bank. The risk to banks is significantly mitigated by the government guarantee.
Under Finance Bill 2020, HMRC will move up the insolvency order of hierarchy from unsecured creditor to secondary preferential creditor status in respect of:
If you have a pending Winding Up Petition at this time, or were contemplating issuing one, this note looks at how the courts are dealing with Petitions in light of the recent government guidance to the public and practice directions for the legal professions.
Those who are familiar with the general winding up list will recognise that a weekly court with multiple barristers, solicitors, company directors, court staff and an Insolvency and Companies Court Judge – often totalling in excess of 50 people is clearly not consistent with current social distancing guidelines.