Government amends insolvency law to give companies breathing space


In the wake of COVID-19, the Business Secretary has announced he will make changes to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency.

This will also include enabling companies to continue buying much-needed supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.

Speaking about the reforms to insolvency law, Matthew Fell, Chief UK Policy Director, Confederation of British Industry, said: “The CBI welcomes these interventions at a critical time for business. The temporary suspension of wrongful trading provisions, along with other measures, will give much needed headroom for company directors to enable otherwise viable businesses to use the government’s support package and weather this crisis.”

Jonathan Geldart, Director General of the Institute of Directors, said: “We are very pleased the Government has listened to the concerns of directors and announced these welcome measures. During the current crisis, directors are facing immense challenges and these are pragmatic steps to provide relief during this unprecedented period. 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.”

Eddie Williams, Midlands Chair of insolvency and restructuring trade body R3 and partner at Grant Thornton, said: “The UK has a world-leading insolvency and restructuring framework, and the new restructuring tools in this package give our profession more options to help businesses navigate COVID-19 disruption. We’re pleased the Government has listened to the profession’s feedback and is focused on making these tools accessible for the businesses that need them.

“The details of how exactly these tools will work are still to be fleshed out, but we’re hopeful that the Government will address many of the concerns the profession has expressed about the reforms since they were first announced in 2016. The moratorium, for example, will not be useful if it can’t be accessed by insolvent companies. It’s important that, as the Government works on the details, it listens to creditors – including lenders, the wider business community, and landlords – on how they will be affected by the moratorium.

“Until the tools are introduced, the profession will continue to use the wide range of tools it has at its disposal to help restructure businesses and rescue jobs.

“The profession will, however, have some serious concerns about the Government’s plans to suspend wrongful trading. A blanket suspension could risk abuse. The provisions are there for a reason and protect creditors. We do understand that directors may be worried about the consequences of continuing to trade amid the COVID-19 disruption if they’re missing debt payments, but good advice from an insolvency practitioner or insolvency lawyer will remove their risk of facing a wrongful trading action.”

The Business Secretary has also announced that the government will introduce legislation to ensure those companies required by law to hold Annual General Meetings (AGMs) will be able to do so safely, consistent with the restrictions on movement and gatherings introduced to address the spread of coronavirus.

Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings.

This measure follows an announcement last week that companies would automatically and immediately be granted a three-month extension to the filing of their accounts following a fast-track online process.

Over 10,000 businesses have already successfully applied for the extension.

Additional information from the Government on changes to insolvency laws:

Under the plans, the UK’s Insolvency Framework will add new restructuring tools including:

  • a moratorium for companies giving them breathing space for from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;
  • protection of their supplies to enable them to continue trading during the moratorium; and;
  • a new restructuring plan, binding creditors to that plan

The proposals will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.

The government will also temporarily suspend the wrongful trading provisions to give company directors greater confidence to use their best endeavours to continue to trade during this pandemic emergency, without the threat of personal liability should the company ultimately fall into insolvency.

Existing laws for fraudulent trading and the threat of director disqualification will continue to act as an effective deterrent against director misconduct.