The U.K. government has announced a series of measures intended to support businesses impacted by coronavirus/COVID-19, including suspension of the wrongful trading regime, a job-retention scheme and a temporary ban on the eviction of commercial tenants.
Suspension of Wrongful Trading Regime
The Department for Business, Energy and Industrial Strategy (“BEIS”) over the weekend announced a number of proposed changes to UK insolvency law in response to the COVID-19 crisis.
On 28 March 2020, the Secretary of State for Business, Energy and Industrial Strategy (BEIS) announced key measures to protect companies and businesses facing major funding and operational difficulties in the current COVID-19 pandemic.[1] The measures will involve the Government bringing forward legislation at the earliest opportunity to amend current U.K. insolvency law to give firms extra time and space to weather the current storm while ensuring that creditors can get the best return possible in the circumstances.
Company insolvency
When is a company insolvent?
In general terms, a company is insolvent if it is unable to pay its debts as and when they fall due.
A company may also be considered to be insolvent if the value of its assets is less than the amount of its liabilities, taking into account contingent and prospective liabilities.
Covid-19 has introduced significant uncertainty to any assessment by directors about their company’s solvency.
Proposed changes to UK insolvency laws aim to support companies under pressure due to COVID-19.
On 28 March 2020, the UK government announced a number of reforms to UK insolvency laws:
On Saturday 28 March 2020, the Government announced significant changes to UK insolvency law to help companies and directors weather the economic storm caused by the Coronavirus (COVID-19) pandemic.
As part of a range of measure to help companies, the Business Secretary, Alok Sharma, announced:
On Saturday 28 March, the Secretary of State for Business Energy and Industrial Strategy announced changes to the insolvency regime with the aim of keeping viable companies trading through the unprecedented challenge of the COVID-19 pandemic.
Further to our update to the existing insolvency laws, whilst it appears from the recent government announcement that UK wrongful trading provisions may be retrospectively relaxed from 1 March for a three month period, directors should continue to have regard to their individual conduct, particularly given the increase of claims funded by the growing litigation funding market.
To Our Clients and Friends Memorandum March 30, 2020 Copyright © 2020 Fried, Frank, Harris, Shriver & Jacobson LLP A Delaware Limited Liability Partnership 1 COVID-19 Pandemic: Key UK Government and Bank of England Initiatives to Support Businesses * In light of the rapidly developing situation and government response, this memorandum is current as of March 29, 2020. The rapid transmission of COVID-19 around the world has had a transformative impact on economies, politics and societies. Europe and the United States, in particular, have now emerged as epicentres of the pandemic.
Not for the first time in the current pandemic crisis, the UK government has found itself playing catch up with other countries. Over the weekend the UK followed the lead of governments in Germany and Australia by announcing plans to introduce a temporary relaxation of the existing wrongful trading regime for company directors. It has also taken the opportunity to revive the previous government's plans to add to the existing UK insolvency law "toolkit" by introducing a new debtor-friendly restructuring law.
Wrongful trading