Coronavirus: Suspension of wrongful trading

On 28th March 2020, the government announced that wrongful trading provisions will be suspended for three months.

This announcement follows a number of measures introduced by the government over the past few weeks in an attempt to protect individuals and business and to preserve the economy as much as possible during the COVID-19 outbreak.

The principle or wrongful trading is set out under section 214 of the Insolvency Act 1986. A company director can be held personally liable for business debts if the business continues to trade when the director knows, or ought to have known, that the business is unable to avoid entering insolvent liquidation or administration.

In the current crisis, the wrongful trading provisions have been extremely worrying for directors whose have been balancing the desire to continue trading (where possible) with the risk of personal liability if the business later goes insolvent.

The Business Secretary, Alok Sharma, confirmed that these changes will be implemented as soon as possible and will be applied retrospectively, commencing 1 March 2020. Directors should note that any decisions made before then will continue to be caught by the Insolvency Rules.

It is hoped that this moratorium will give businesses an opportunity to utilise the government’s support packages and to enable them to continue trading. Discussing the changes, Alok Sharam stated that the measures “will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.” The ultimate goal is clearly to help businesses emerge out of the COVID-19 crisis intact.

Existing laws relating to fraudulent trading and director disqualification will remain in place

This relaxation of the wrongful trading provision follows an announcement that companies will have an additional three months’ to file their accounts.

It is also understood that legislation will be introduced granting companies more flexibility so that they may hold AGM’s remotely or postpone them until the current restrictions on movement have been relaxed.

Further information

The government publishes daily updates at 2pm with the latest updates and advice.

We will endeavour to update you as and when further news is received.

For specific advice about your case, please contact our specialist Disputes team through the website or by calling 0330 404 0738.

This information is correct at 9.00am on 1 April 2020.