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:
During the UK government’s daily COVID-19 press conference on 28 March 2020, Business Secretary Alok Sharma announced that changes to insolvency laws are to be introduced at the “earliest opportunity,” to provide businesses with greater flexibility and support to “weather the storm.”
Proposed changes
The new restructuring tools include:
The Government continues to develop its response to the COVID-19 pandemic. In this Insight we examine the weekend's announcement from the Business Secretary that provides some welcome good news for directors.
The government has announced a suspension of the wrongful trading rules under the Insolvency Act 1986. Wrongful trading can give rise to individual liability for company directors if it appears that they continue to trade a company when it is effectively insolvent. The suspension is part of a range of measures designed to help struggling companies keep trading during the Covid-19 outbreak. Further details of the implementation are awaited however the changes will apply retrospectively from 1 March 2020.
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.
The Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma, has announced that the government will be introducing a number of changes to the insolvency regime in England & Wales as part of its response to the COVID-19 outbreak.
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.
The measures include temporarily suspending wrongful trading liability for directors and implementing a new restructuring plan and moratorium to provide companies with a period of time to explore rescue options during the coronavirus (COVID-19) pandemic.
The Government's temporary suspension of the rules surrounding wrongful trading, to apply retrospectively from 1 March 2020 for three months, will temporarily protect directors from actions for wrongful trading (and so encourage them to continue trading in circumstances where otherwise they may have feared to).