COVID-19: Insolvency & The UK Gov’s Temporary Suspension of Wrongful Trading Liability

By Linda Crow

19.05.2020

Wrongful Trading

On 14 May 2020, the UK Government extended the temporary suspension of wrongful trading liability until 30 June 2020.

On 28 March this year, the Government announced that it would “at the earliest opportunity“ introduce legislation, retrospective to 1 March 2020, to relax the insolvency rules which can make directors of limited liability companies potentially liable if they continue to trade and incur liabilities when they knew or ought to have concluded that there was no reasonable prospect of avoiding an insolvent liquidation or administration.

The relaxation of the wrongful trading rules is to give directors confidence to do all that they can to continue trading during the pandemic emergency, knowing that they have no threat of personal liability should the company subsequently fall into an insolvency procedure.

The current laws relating to fraudulent trading and directors’ disqualification continue in full force and effect.

Other Changes to Insolvency Law

In August 2018, as part of its response to its consultation on Insolvency and Corporate Governance, the Government announced its intention to introduce:

  • A new short moratorium that would prevent creditors taking enforcement action against a company while it was considering options for rescue.
  • Protection of supplies during the moratorium to permit trading to continue.
  • A new restructuring procedure that would allow a company to bind all creditors through the use of a “cross-class cram down” provision.

The March 28 announcement made reference to these proposals but gave no further detail or indication of when they may be introduced, and nothing has been forthcoming since, so the proposals provide little comfort or assistance to directors in the current crisis.

For More Information

If you would like more information about these announcements, or about the UK’s insolvency laws in general, please do not hesitate to contact Linda Crow or another member of your Duane Morris London Team.