There was a recent announcement from the Secretary of State for Business Energy and Industrial Strategy in which changes were put forward regarding the UK’s insolvency rules. The aim being to try to help businesses keep on going through the huge challenges faced by the COVID-19 crisis.
What was announced?
The announcement included:
New rules on supplies
New rules will be put forward to ensure businesses continue to get raw material supplies. The changes will allow companies to continue buying much-needed supplies, such as energy, raw materials or broadband.
Companies that have not yet entered into a formal insolvency process will be assured that there will be a continuation of those key supplies so that they can carry on trading.
Wrongful trading provisions suspended
Wrongful trading provisions for directors are to be temporarily suspended. These provisions require directors to continually assess the financial viability of their company. And this amendment aims to remove potential liability for directors in circumstances when they knew, or should have known, that their company should have entered into a formal insolvency process.
This should allow directors who have been affected by the economic impact of the pandemic to continue trading.
Continued duties for directors
It was also highlighted that despite the suspension of wrongful trading provisions, all other checks and balances aimed at directors, trustees and governors fulfilling their duties to their respective companies responsibly, will still remain in force. If a company is insolvent, the directors have a duty to act in the best interest of any creditors.
If a company has gone into liquidation, the office holder does have the power to claim for breach of duty against any director who has misapplied, retained, or become accountable for money or other property of that company. As well as any director who has otherwise been “guilty of misfeasance”.
The legislation that will bring these changes is yet to be officially published, but is expected soon. Nevertheless, it’s advisable that those running a company that is suffering in these unprecedented times should continue to seek professional advice
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