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Government Announces It Will Not Be Renewing The Suspension Of ‘Wrongful Trading’ Rules For Company Directors

Reasons to choose Wilson Browne

Last week we reported on the Corporate Insolvency & Governance Act (CIGA), which since its introduction in June has received mixed reviews on its capability to help stabilise the UK economy. The act which introduced new corporate restructuring tools was put in place to overrule the Insolvency Act 1986 and help directors of failing companies continue trading without fear of legal repercussions.

It included, but was not limited to;

  • Stopping suppliers from withdrawing goods or changing contractual terms,
  • Temporarily suspend liquidators and administrators from being able to bring claims for wrongful trading,
  • Granting time extensions for Companies House.

With the temporary measures running out on the 30th September 2020, some aspects of the Act were renewed by the Government, such as the ability to hold virtual meetings, restrict winding-up petitions and prohibit suppliers from ceasing supply or asking for additional payments while a company is going through a rescue process.

However, the suspension of ‘wrongful trading’ rules for company directors was not renewed, meaning the breathing space given to directors to secure their business would abruptly end after only 6 months.

Roger Barker, Director of Policy at the Institute of Directors spoke out against the governments’ decision not to renew the protection;
“The failure to extend this measure sends a bad signal to directors across the country, and risks opening the door to a wave of avoidable insolvencies.

Many directors, particularly in sectors like hospitality, tourism, and events, still have little clarity on the long-term viability of their companies due to the pandemic and public health measures. The suspension of these rules has given business leaders greater confidence to press on and seek a way through the uncertainty for their organisation and staff. Now, the message to businesses against the wall appears to simply be to shut up shop.

The Government took some positive steps last week to support a business-led recovery. But with so much uncertainty around the virus, and with the new Job Support Scheme unlikely to prevent many redundancies, reapplying wrongful trading rules is a serious misstep. The Government shouldn’t prop up companies that aren’t viable in the long term, but as we enter new restrictions, the definition of long-term viability is far from clear-cut.”

This decision will come as good news for some who argued that the protection provided by the CIGA could encourage corporate failure, exploitation and let those directly responsible get off the hook. However, with Covid-19 still affecting the majority of UK businesses and restrictions getting tighter, some will argue that the timeframe provided by the government has not been sufficient to allow directors the chance to prevent their company from collapsing.

For further information and guidance, please contact the Company & Commercial team on 0800 088 6004.

 

Rebecca Flint-Hill

Posted:

Rebecca Flint-Hill

Paralegal

Rebecca is a Paralegal for our Commercial Litigation team based within our Kettering office. Rebecca assists our senior fee earners with a wide range of adverse possession matters. Rebecca is currently studying for her Graduate Diploma in Law and is in her second year of…