The coronavirus outbreak has impacted thousands of businesses around the UK. Those operating in the likes of hospitality, tourism and retail have been hit particularly hard by the social distancing and then the lockdown that’s been imposed on the whole of the country’s population.
At the government’s daily press briefing on Friday 28 March, Business Secretary Alok Sharma announced that there would be changes to insolvency rules at this time to give businesses “greater flexibility as they face the current crisis”.
Among the changes unveiled at the briefing are that firms undergoing restructuring will be able to maintain access to supplies and materials, as well as a suspension of the wrongful trading provisions for company directors.
This latter change removes the threat of personal liability to directors during the current crisis, and Mr Sharma announced that this change would be introduced retrospectively to 1 March 2020.
He explained that the main objective with these changes to insolvency rules is to help businesses that are restructuring or that require a financial rescue to keep trading during this difficult period.
Speaking at the press conference, Mr Sharma stated: “These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends, while ensuring that creditors get the best return possible.”
He added, however, that there will be no changes to “all of the other checks and balances that help to ensure directors fulfill their duties properly” and that all of the legislation in this area will remain in force.
The announcement comes after the Institute of Directors (IoD) called on the government to introduce emergency insolvency measures to help prevent many firms collapsing as a result of the coronavirus pandemic.
Director general of the IoD Jonathan Geldart stressed that “directors are facing unprecedented challenges and need to see urgent temporary measures to avert entirely preventable corporate collapses”.
The IoD explained that there is a strict duty for the board of directors to announce that a company will stop trading if it is insolvent, or if insolvency can’t be realistically avoided in the near future. This means a business has to go into administration or liquidation.
One of the reason why the IoD was calling on the government to relax the rules surrounding personal liability for the directors was that many were hesitant to accept new loans or government support if they were still concerned about insolvency in the future, and feared that they could be held liable if they failed to declare insolvency immediately.
Following Mr Sharma’s announcement, Mr Geldart issued a statement welcoming the changes. He commented: “The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses.”
He added that it’s “absolutely right” for the government to find ways to “prioritise jobs and business survival” during this time.
One of the big challenges facing businesses at present is uncertainty over how long the current lockdown situation will persist, and even if those conditions are lifted, how long it will be before the UK’s economy returns to anything approaching normal operations.
These are difficult times with new challenges for business owners to navigate. If you’re not sure how best to approach the situation for your business, get in touch with corporate insolvency solicitors Lennons Solicitors who can help you to work out the best way forward for your firm.