Prior to the pandemic, company directors were legally obliged to cease trading if their company faced insolvency under the Insolvency Act 1986, writes Karen Bright, Head of our Litigation & Dispute Resolution teams.
However as one of its measures to protect companies the UK government suspended the ‘wrongful trading’ rules for four months in June, but the Chancellor of the Exchequer did not renew the suspension of these rules for company directors in his Winter Economy Plan, announced last week.
According to the Institute of Directors (IoD) Rishi Sunak could have done more to protect UK businesses ad predicts many will now be facing insolvency through no fault of their own.
“The failure to extend this measure sends a bad signal to directors across the country, and risks opening the door to a wave of avoidable insolvencies,” said Roger Barker, Director of Public Policy at the IoD.
The protection, which was part of wider efforts by the government to give businesses “much-needed breathing space during the coronavirus pandemic,” ran out last week.
The IoD is pressing the government to extend the measure to the end of the year, in line with other insolvency measures that were renewed last week.
“Many directors, particularly in sectors like hospitality, tourism, and events, still have little clarity on the long-term viability of their companies due to the pandemic and public health measures,” reported the IoD.
“The suspension of these rules has given business leaders greater confidence to press on and seek a way through the uncertainty for their organisation and staff. Now, the message to businesses against the wall appears to simply be to shut up shop.”
The UK government introduced emergency coronavirus legislation in June. Among the new rules was a time-limited suspension of director liability for wrongful trading that applied from 1 March to 30 September 2020.
“It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency,” said UK business minister Lord Callanan in a statement last week.
In my experience business owners who look ahead, often stay ahead.
As we previously wrote here acting early is always a company’s best defence against potentially difficult times and decisions.
If you would like to have a confidential discussion about some of the decisions you may be facing please contact me via firstname.lastname@example.org or call me, on 0207 7079 2410.
The above is accurate as at 1 May 2020. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.