The Business Secretary, Alok Sharma, announced changes on 28 March 2020 that the government will amend insolvency law to give companies breathing space and keep trading while they explore options for rescue, helping them avoid insolvency.
Under the plans, the UK’s Insolvency Framework will add new restructuring tools including a moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure; protection of their supplies to enable them to continue trading during the moratorium; and a new restructuring plan, binding creditors to that plan.
It is understood that the proposals will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.
Current insolvency rules stipulate that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts (wrongful trading). The government will temporarily suspend the wrongful trading provisions retrospectively for a 3 month period from 1 March 2020, to give company directors greater confidence to use their best endeavours to continue to trade during this difficult time, without the threat of personal liability should the company ultimately fall into insolvency
Existing fraudulent trading laws and the threat of director disqualification will continue to act as a deterrent against director misconduct.
It is hoped that these measures will help further reduce the burden on business in the Covid-19 pandemic emergency, giving a much needed temporary reprieve to help keep companies going. The announcement has been welcomed by the Confederation of British Industry and the Insolvency Lawyers Association.
Legislation to implement these changes will be introduced in Parliament at the earliest opportunity and we will update this article once further information becomes available.
