The UK Government has introduced a new suspension of the wrongful trading provisions contained in s214 of the Insolvency Act 1986 (IA 1986) to apply from 26 November 2020 to 30 April 2021.
Earlier this year, it was announced that there would be a suspension to the law which prohibits the wrongful trading of companies, in order to provide directors with much needed breathing space amidst the COVID-19 pandemic (see post here). The move was intended to protect directors from liability under s214 IA 1986 if they continued to trade and pay staff and suppliers during the pandemic. The idea is that, with the possibility of personal liability for company debts being reduced, directors will be less likely to rush into a formal insolvency process and therefore avoid exacerbating the economic impact of the pandemic.
The suspension of wrongful trading was originally drafted to last for three months, with retrospective effect from 1 March 2020. However, as my colleague Jessica previously posted, it was announced on 14 May 2020 that the suspension would be extended to 30 June 2020. Following the introduction of the Corporate Insolvency and Governance Act 2020, the wrongful trading provisions were further extended until 30 September 2020.
Now, 8 weeks following the end of the most recent extension (and as we are reaching the end of Lockdown 2.0), the government has introduced a second suspension of wrongful trading, to last from 26 November 2020 to 30 April 2021.
This will be welcome news for directors of struggling businesses. However, as with the previous suspension, there has been no relaxation on directors’ fiduciary and statutory duties, nor to the rules on fraudulent trading. Consequently, administrators and liquidators are likely to continue to focus on and pursue directors for any breaches of those duties, irrespective of whether they can pursue a wrongful trading claim or not. It remains our view that, notwithstanding this new suspension, directors should continue to carefully monitor the company’s future viability and minute decisions throughout the process.
It remains to be seen what impact, if any, the new provisions will have on wrongful trading which occurred during the 8 week gap from the end of the previous suspension (30 September) and the start of the new suspension (26 November).
Directors’ actions will remain subject to scrutiny, making it critical that they consider very cautiously whether to continue trading if there is not a realistic chance of their company avoiding insolvency.