Insolvency rules suspended to help struggling companies

Struggling companies undergoing a rescue or restructure process will be allowed to continue trading, giving them breathing space to avoid insolvency.

New government measures mean that the change involves temporarily suspending wrongful trading provisions retrospectively from 1st March for three months for company directors so they can keep their businesses going without the threat of personal liability.

The Business Secretary has announced he will make changes to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency.

This will also include enabling companies to continue buying much-needed supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.

Business Secretary Alok Sharma said “The government is doing everything in its power to save lives and protect livelihoods during these unprecedented times. Applying a common-sense approach to regulation will ensure products are safe and reach the market without any unnecessary delay, getting vital protective equipment such as face masks to frontline staff as quickly as possible.”

“Today’s measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”

Duncan Swift, President of insolvency and restructuring trade body R3 said “The UK has a world-leading insolvency and restructuring framework, and the new restructuring tools in this package give our profession more options to help businesses navigate COVID-19 disruption. We’re pleased Government has listened to the profession’s feedback and is focused on making these tools accessible for the businesses that need them.”

“The details of how exactly these tools will work are still to be fleshed out, but we’re hopeful that the Government will address many of the concerns the profession has expressed about the reforms since they were first announced in 2016. The moratorium, for example, will not be useful if it can’t be accessed by insolvent companies. It’s important that, as the Government works on the details, it listens to creditors – including lenders, the wider business community, and landlords – on how they will be affected by the moratorium.”

“Until the tools are introduced, the profession will continue to use the wide range of tools it has at its disposal to help restructure businesses and rescue jobs.”

“The profession will, however, have some serious concerns about the Government’s plans to suspend wrongful trading. A blanket suspension could risk abuse. The provisions are there for a reason and protect creditors. We do understand that directors may be worried about the consequences of continuing to trade amid the COVID-19 disruption if they’re missing debt payments, but good advice from an insolvency practitioner or insolvency lawyer will remove their risk of facing a wrongful trading action.”

Adrian Hyde, Partner at CVR Global said “The government has clearly been listening to business throughout this crisis and it is encouraging that it has taken on board the suggestions from the insolvency profession. The moratorium process that is envisaged is a very welcome development and exceptional times call for exceptional measures.”

“In relation to the wrongful trading provisions, the key will be in the detail, and the effects of the interim position once they are re-introduced. However, it is good to see the all-round package that the government has provided to support business in this time of need – it is key that measures are put in place to give businesses every chance of surviving through this crisis.”

Jonathan Geldart, Director General of the Institute of Directors, said “We are very pleased the Government has listened to the concerns of directors and announced these welcome measures. During the current crisis, directors are facing immense challenges and these are pragmatic steps to provide relief during this unprecedented period. The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses. It’s absolutely right that the Government should look to prioritise jobs and business survival.”