Sky News reports today that the Insolvency Service is considering reforms to insolvency laws which may include a moratorium on winding up petitions against companies and the suspension of rules on wrongful trading.
Undoubtedly COVID-19 has had (and will have) a devastating effect on some businesses. A decision by the UK government to prevent the presentation of winding up petitions in the current climate (and, by association, suspend the rules on wrongful trading) may save a company which is trying to "sit tight" through this period of uncertainty and hope that it can trade itself back out of the damage done by COVID-19 in the future.
That being said, a debtor company which knows no petition can be presented against it for a period of time, may make a tactical decision not to pay creditors even where it is financial able to do so to protect its own position, at the expense of another company. In making this change, would the government simply be giving permission for companies to "rob Peter to pay Paul"?
It remains to be seen what (if any) reforms will be made to insolvency legislation in light of the current circumstances but no doubt companies in financial distress will be waiting to see if they are given a grace period to trade out of the financial difficulties caused by COVID-19.
Sky News has learnt that the Insolvency Service, which sits within the Department for Business, Energy and Industrial Strategy (BEIS), has begun canvassing views among restructuring professionals about urgent changes to company legislation. The reforms, which would be implemented through emergency laws, could include a moratorium on winding-up petitions against companies, and suspending rules on wrongful trading in order to afford more protections for directors, according to industry sources.