Please note: The information provided in this blog is correct as of 30/03/2020. As the COVID-19 situation continues to develop, guidance may change. We will do what we can to ensure our blogs remain up to date but we would always advise you speak with a solicitor for advice that is specific to your circumstances.
The UK’s Business Secretary, Alok Sharma, has announced that new insolvency measures are being put in place to prevent businesses from failing due to Covid-19.
The immediate and primary change is a suspension of personal liability for a director under the provisions of Section 214 Insolvency Act 1986 i.e Wrongful Trading.
A claim for Wrongful Trading would usually arise when a director knew or ought to have known that insolvent liquidation was inevitable and the company’s creditors have suffered increased losses from that point.
The changes mean that from 1 March 2020, if a company’s director(s) knew or ought to have known the company was insolvent, the directors cannot be liable for the increased losses from 1 March 2020 to liquidation.
However, directors must note that the remaining powers of an insolvency practitioner remain. IPs will still be able to bring personal claims against directors under Section 212 Insolvency Act 1986 (misfeasance) and Sections 171 – 171 Companies Act 2006 for breach of director’s duty.
IPs will also still be able to reclaim preference payments and payments made at an undervalue / designed to defraud creditors and directors can be personally liable for those amounts under Section 212 Insolvency Act 1986 and/or Sections 171-177 Companies Act 2006.
The proposed changes show an intention from the government to assist directors and their businesses during these difficult times but directors ought to understand the changes do not bring about blanket protection from personal liability.
Our advice remains the same. Take advice early to protect your position. If we can assist any directors / creditors with any matters relating to insolvency law then Mark Hague can be contacted via mark.hague@farleys.com
