On 28 March 2020, the UK Government announced that it intends to temporarily change the UK’s insolvency laws in response to COVID-19. More details are to follow in relation to the exact changes, but it is worth remembering that Parliament is currently in recess until 21 April 2020.
Key changes will be applied to the offence of wrongful trading. Wrongful trading rules make it an offence for a company director to continue to trade if they know their business is unable to avoid going into liquidation. The violent interruption to the economy and business as a consequence of the pandemic would likely trigger many breaches of these provisions. In order to support the mothball and suspension of business during the Government imposed shut down, provisions that would otherwise render directors personally liable for wrongful trading, as a result of the coronavirus will be temporarily suspended.
This change will now protect directors if they fail to take all steps required to minimise potential losses to creditors once their business has no reasonable prospect of avoiding an insolvent liquidation/administration process. This may prevent corporate collapses in the long run as directors will have greater and quicker decision-making abilities during the pandemic.
The government explicitly asserted that all other existing laws and duties applicable to directors will remain in force. In particular, regulations relating to the avoidance of fraudulent trading by directors alongside the threat of director disqualification will not change.