Directors – wrongful trading

Updated 30 March 2020

The UK government has announced new insolvency measures to prevent businesses unable to meet debts due to the impact of coronavirus from being forced to file for bankruptcy. Alok Sharma, the UK business secretary, has announced that the wrongful trading law would be suspended to protect directors during the pandemic.

The intention is that these measures will give those firms extra time and space to weather the storm and be ready when the crisis ends, whilst ensuring creditors get the best return possible in the circumstances. Legislation, which would retrospectively apply from the beginning of March, would be introduced at the “earliest opportunity”.

Jonathan Geldart, director-general of the Institute of Directors, commented:

“The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses. It’s absolutely right that the government should look to prioritise jobs and business survival.”

The concept of “wrongful trading” was introduced into UK insolvency law in 1986 and makes it an offence for a company director to continue to trade if they know the company is unable to avoid going into liquidation. In simple terms when a company can no longer pay its debts as and when they fall due.

If you have concerns or questions, please contact us on 01932 830664 or through your usual client partner contact. As further details are announced, we will keep you informed.

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