Businesses and individuals will be concerned about their finances and liquidity during the ongoing coronavirus epidemic due to the difficult economic situation it has created.
The Government is trying to take action to prevent the closure of businesses or loss of income, however, the reality is that many firms are likely to face insolvency, as are many individuals.
Undergoing insolvency proceedings can be stressful and emotional so it is important that you have a trusted advisor that you can rely on.
If your business is facing the prospect of insolvency, then there are several options available to you, from a company voluntary agreement (CVA) through to administration.
You must consider which option is most appropriate to your situation and seek legal advice.
Just keep trading – Suspension of director liability for trading in the face of insolvency
New measures announced on the 28th March by the Government’s Business Secretary seek to provide reassurance to directors of businesses that are suffering to stay afloat as a result of the Covid-19 pandemic.
Under English law, where a company continues to trade even in the face of unavoidable insolvency, the company’s director(s) can be found personally liable for the losses suffered to creditors as a result, potentially leading to a court ordered contribution to the assets of the insolvent company.
As part of the measures announced on Saturday, restrictions around wrongful trading are to be suspended retrospectively from the 1st March for an as of yet undefined period.
This is likely to come as a relief to many directors of businesses struggling as a result of contract cancellations, supply chain issues, staff illness and the myriad of other pressures that are contributing to the current hostile trading conditions for many companies.
Those directors who continue to trade in this period knowing that their company faces insolvency will not be penalised for doing what they can to keep their business afloat.
The British Chamber of Commerce welcomed the suspension of wrongful trading rules stating that:
“Companies that were viable before the outbreak must be supported to ensure they can help power the recovery when the immediate crisis is over.”
Anticipated further measures, including protection against winding up petitions from creditors have not yet been detailed, however, the suspension of wrongful trading rules forms part of the Government’s efforts to prevent mass company insolvencies and a corresponding rise in unemployment.
If you have questions about what this means for you as a director or have concerns around the impact of Covid-19 on your business, please contact a member of Mackrell’s highly experienced Corporate team.
Many of those affected by the closure of companies, debts or loss of investments may need to consider personal insolvency options, which include:
- Individual voluntary arrangement (IVA)
- Debt relief order (DRO)
If you are considering taking any of these steps in the coming months it is vitally important that you speak to a solicitor.
We represent both individuals and companies on matters relating to corporate and personal insolvency, restructuring and corporate recovery. Speak to us today for specific advice tailored to your situation.