Coronavirus: UK government suspends insolvency rules to help struggling firms


Directors of companies will now be able to pay staff and suppliers during the coronavirus outbreak even if the company is facing insolvency thanks to the suspension of wrongful trading laws by UK business secretary Alok Sharma.  The measure also alleviates concerns that borrowing additional funds offered by the UK government could place a director at risk of personal liability.

Announcing the new rules, that will be backdated to March 1st, 2020, Alok Sharma said, “These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends, whilst ensuring creditors get the best return possible in the circumstances.”

The changes include a temporary break for businesses undergoing a restructuring process, during which time they cannot be put into administration by creditors and will continue to be able to access raw materials.

Under current legislation, if a director continues to trade a business whilst it is technically insolvent, the director may be liable for wrongful trading if the business enters administration or insolvent liquidation, and by continuing to trade the net deficiency to creditors’ increases. The offer of government funding had placed directors in a difficult position because taking out loans to save the business could have resulted in personal liability if the business fails. But following an avalanche of criticism, high street banks backtracked on loan requirements which insisted that business owners provide personal guarantees for government-backed loans.

Both these measures should remove pressure on businesses because they now should be able to take advantage of the financial packages on offer and ensure that they can recover once the COVID-19 crisis is over.

UKHospitality chief executive Kate Nicholls commented, “I am pleased the business secretary has confirmed retrospective temporary suspension of the Insolvency Act to give directors confidence to act, particularly around staff and wages, without fear of liability. This was a proposal we first put to government last week and have been working hard to secure.”

Category: Coronavirus, Editors' Picks, News
Tags: insolvency