Emergency changes to insolvency law to help UK companies survive the Coronavirus crisis
The Department for Business, Energy & Industrial Strategy (BEIS) is looking to rapidly reform insolvency rules so businesses that are unable to meet debts due to the impact of coronavirus are not automatically forced to file for bankruptcy.
Under normal trading laws, company directors have a legal responsibility to keep losses to creditors at a minimum and as such, if directors knowingly trade whilst insolvent, they could incur personal liability for company debts. But in unprecedented times these laws look set to change.
The proposed amendments include offering businesses more protection from creditors in an effort to prevent mass company failures and a sharp rise in unemployment.
This move will also include enabling companies to continue buying much-needed supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.
The Institute of Directors (IoD) has welcomed the announcements. Jonathan Geldart, Director General of the IoD, commenting:
“We are very pleased the Government has listened to the concerns of directors and announced these welcome measures. During the current crisis, directors are facing immense challenges, and these are pragmatic steps to provide relief during this unprecedented period. The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses. It’s absolutely right that the Government should look to prioritise jobs and business survival.”
This move will be wholeheartedly welcomed by the business community and is another step forward to help UK businesses stay afloat.
If you have any concerns regarding your business, please do get in touch.