On 28 March 2020, the UK Government announced new insolvency measures to support businesses under pressure as a result of the coronavirus outbreak.
The Government will amend UK insolvency law to give companies breathing space so they can keep trading while they explore options for rescue, and will also temporarily suspend wrongful trading provisions retrospectively from 1 March 2020 for three months.
Begbies Traynor is providing guidance to business advisors so that their clients can follow this guidance while ensuring they don’t neglect their fiduciary duties to creditors and shareholders in these testing times. As always, getting early advice is key in understanding these measures and what impact they might have for their clients.
In summary, the emergency insolvency law changes include:
- a moratorium for companies to give them breathing space from creditors enforcing their debts for a period of time while they seek a rescue or restructure;
- protection of their supplies to enable them to continue trading during the moratorium;
- a new restructuring plan, binding creditors to that plan;
- proposals to include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought; and
- temporary suspension of wrongful trading provisions to give company directors greater confidence to use their best endeavours to continue to trade during this pandemic emergency, without the threat of personal liability should the company ultimately fall into insolvency.
The temporary suspension of wrongful trading provisions, along with the introduction of these other measures, could provide much needed respite for company directors to enable otherwise viable businesses to use the Government’s support package and weather this crisis. The Government considers that existing laws for fraudulent trading and the threat of director disqualification will continue to act as an effective deterrent against director misconduct.