The advice given in this article is correct as of 30th March 2020. The situation with Coronavirus is developing rapidly, so please do check our COVID-19 Insights Hub for the latest updates.
On 28 March 2020 the Business Secretary, Alok Sharma announced the government was introducing new measures designed to help businesses navigate through the Coronavirus pandemic to avoid insolvency. The measures are aimed at enabling companies in the UK undergoing a rescue or restructure process, to continue trading to avoid otherwise viable businesses from collapsing.
The two key measures announced were:
- New rules to be introduced that allow a company undergoing a restructuring process to continue to purchase raw materials and supplies. It is noted that Financial Times reported a temporary moratorium on creditor action during this period, although that was not explicit in the statement.
- Temporary three month suspension of the wrongful trading laws, commencing from 1 March 2020.
It is difficult to asses the measures without seeing the detail of the legislation but such steps to try and help companies and their directors through an unprecedented challenge are welcome.
There will be some concerns over the suspension of the wrongful trading laws, which it must be remembered are designed to protect creditors. It is easy to see how such a suspension could be abused by directors of companies with no prospects of avoiding insolvent liquidation, or for whom Coronavirus is not the reason they find themselves in difficulty.
Alok Sharma also stressed in making the above announcements that all other directors’ duties need to be complied with and so the measures should not be seen as green light to trade on regardless. Directors will still need to have regard to their general duties to the company and in particular, to its creditors where the company is either insolvent or is likely to become so. You can find further information on directors’ duties in our recent article.
Any director of a company should still seek advice from their professional advisors where they have any concerns about the solvency of their company or its ability to trade back into a solvent situation. Given how fast events are moving this may require an ongoing and regular assessment.