HM Insights

Coronavirus: changes to UK Insolvency law announced

In tonight’s UK Government briefing the Business Secretary, Alok Sharma, announced changes to UK insolvency law to be introduced at the earliest opportunity.

What will the changes include?

The changes will include a retrospective suspension for three months from 1 March of the rules on directors liability for wrongful trading where a company is in financial difficulties as a result of the Coronavirus.  They also include a procedure to allow companies which need to undergo a financial rescue or restructuring process to continue trading during the restructuring period while also ensuring that creditors get the best return possible in the circumstances.

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The changes will include new rules to ensure that companies undergoing restructuring can continue to get supplies and raw materials during the period of restructuring.

Mr Sharma said that the measures would give companies in financial distress extra time and space to weather the storm and be ready to trade again when the crisis ends.

In general the measures are welcome as part of the Government’s effort to assist UK businesses to survive in unprecedented circumstances. In such times it remains vitally important that directors concerned about their company’s viability should take advice both on the processes available to enable the company to continue trading notwithstanding temporary financial distress and on their own position in relation to the risk of personal liability.

Wrongful trading measures

The precise effect of these measures will only be clear once the relevant legislation is published. In relation to the wrongful trading measures, the Business Secretary has said that all of the other provisions which help to ensure that directors fulfil their duties properly will remain in force. However, it is important to remember that the concept of personal liability for wrongful trading was introduced to protect creditors and the public in general from unscrupulous directors who carry on trading and running up debt knowing that their company is already insolvent and will be unable to pay. The blanket removal of these provisions for even the most flagrant cases may have undesirable consequences

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