In what will no doubt be welcome news for directors of struggling businesses during the coronavirus pandemic, the UK business secretary has announced that the law which prohibits the wrongful trading of companies will be suspended.
In this unprecedented move, the relaxation of the law means that directors who continue to trade companies during this period will not be found at fault of wrongfully trading companies when they ought to have realised that there was no prospect of avoiding insolvency. The move will allow directors to pay staff and suppliers in circumstances even if there are fears that the company may become insolvent. This means that directors will not be personally liable for the continuation of the company in order to try to survive the period of the UK's lockdown.
The proposals seek to try to prevent numerous businesses failing as a result of directors trying to balance their duties to creditors whilst also trying to keep the companies alive, when some are essentially unable to trade for an unknown period of time. Directors will however still be personally liable for other offences under the Insolvency Act 1986.
This move follows changes which have been implemented recently throughout the world, and further reforms are expected in the near future.
Alok Sharma, the UK business secretary, said the wrongful trading law would be suspended to protect directors during the pandemic.