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IoD Explainer: Emergency Insolvency Measures

31 Mar 2020

businessman leaning on desk with chart and pencilAt the end of March, the Business Secretary announced that the Government will be implementing a  number of measures around insolvency that the IoD had been calling for in their discussions with Ministers and Officials in light of the current pandemic.

As IoD members will know, existing rules mean that Directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts. The Government has announced that these wrongful trading rules be temporarily suspended. The change is intended to give Directors greater confidence to continue to trade during this pandemic, without the threat of personal liability should the company ultimately fall into insolvency.

Although recognising the exceptional circumstances, the Government has been careful to make clear that the reforms should not be interpreted as carte blanche. Fraudulent trading and the threat of director disqualification will continue to act as an effective deterrent against director misconduct.

In addition to introducing a temporary suspension of wrongful trading provisions. The Government is also planning to introduce new restructuring procedures that will allow firms undergoing a rescue or restructuring process to continue trading, giving them ‘breathing space’ that could help them avoid insolvency. Although there is limited detail on these measures they are expected to resemble U.S. Chapter 11 proceedings. The US Chapter 11 process seeks to allow a wide range of proposals to be put into a reorganisation plan, including having the company and its management survive the process.

The Business Secretary has indicated that legislation, which would retrospectively apply from the beginning of March, will be introduced at the “earliest opportunity”. Parliament remains in recess until 21 April.

During the current crisis, directors are facing immense challenges and these are pragmatic steps to provide relief during this unprecedented period. The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses.

How the IoD can help

Throughout the last few weeks, the IoD has been providing feedback from members received through surveys and our network across the UK directly to UK and devolved governments and to the Bank of England, helping deliver policy measures such as those outlined above. We are in continuous contact with Ministers, including the Business Secretary, and we would continue to welcome any information, or any questions you want asked. Please don’t hesitate to send these to

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