In the post on 27 March 2020 we asked if the laws on insolvency and wrongful trading would change in response to Covid-19. The Government quickly decided that they should.
On 28 March 2020, in a press release, the Government announced it intends to amend insolvency law to help companies keep trading while they explore options for rescue. Under the plans, new restructuring tools will be added to the UK's insolvency framework including:
- a moratorium for companies to give them a breathing space from creditors enforcing their debts for a period of time while they seek a rescue or restructure;
- protection of supplies to enable companies to continue trading during the moratorium; and
- a new restructuring plan, that will be binding on creditors
These changes have been discussed for some years as part of a review of the insolvency framework and are welcome.
The Government will also temporarily suspend the application of wrongful trading provisions under the Insolvency Act retrospectively from 1 March 2020 for three months. The Government intends that existing laws against fraudulent trading and the threat of director disqualification will act as a deterrent against reckless misuse of the new measures.
Directors need to be mindful that this does not mean that they are free to act as they wish in this period - in addition to the risks of fraudulent trading and disqualification they have various fiduciary duties to different stakeholders and these duties will not be suspended.
Given this directors should still follow, as far as possible, the practical steps found here and remember that their actions may be reviewed with the benefit of hindsight.
Update: Since this article was written, the Corporate Governance and Insolvency Bill has been laid before Parliament: read a recent update here.