Just keep trading – Suspension of director liability for trading in the face of insolvency

Posted on Monday March 30, 2020

Rob WatsonNew 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.