Unless you are Amazon, a major supermarket or a supplier of PPE, you would be forgiven for feeling a little punch-drunk at the moment as you attempt to steer your business ship through uncharted and ever-changing waters.
The Government has worked hard to provide some relief to the bulk of (but not all) businesses and business people, and it has now published a draft bill to relieve one particular headache for company directors and members of LLPs.
Whilst company directors do not normally incur liability for their company’s losses, the Insolvency Act provides that, where it is apparent that a company (or LLP) cannot avoid insolvency but it continues trading, the directors may be held liable for the losses the company’s creditors incur as a result of trading between the point at which insolvency was inevitable and the actual date upon which it ceased trading. This is known as “Wrongful Trading” and is often a key factor weighing on directors’ minds when they consider whether their business can safely “trade through”.
On 28 March 2020 the Government announced its intention to suspend the Wrongful Trading rules for the period from 1st March 2020 to 30 June 2020. The Government has now published its Corporate Insolvency & Governance Bill which had its first reading last week. Under the Bill, a Court cannot order a company director to contribute to a company’s assets where losses are incurred after the period when insolvency cannot be avoided if such losses were incurred in the period from 1st March 2020 to 30 June 2020. The Bill is expected to receive its final reading on 3 June 2020.
If you have investments you’ll be glad to know that this temporary change in the law does not apply to banks, building societies and other payment institutions.
Whilst the new law does sound like a “Get Out Of Jail” card for company directors and members of LLPs, beware, as there are other laws concerning directors duties that provide that directors must have regard to the interests of creditors, particularly where an insolvency situation may be looming. If you consider that your business may be threatened with insolvency therefore, the best advice is still to consult your accountant or an insolvency practitioner for expert guidance.
So, whilst the Government may have removed one elephant trap for directors, you still need to watch your footing.
This article was written by Iwan Emanuel Corporate Partner at Allan Janes.Iwan has specialist expertise in the area of company law, including mergers, acquisitions and advising in relation to directors' duties. Please do not hesitate to contact us for a free no obligation telephone discussion.