Over the weekend, the government announced changes to the UK Insolvency Law.
Speaking at the daily press conference on Saturday, Alok Sharma, the Business Secretary, said changes would be made to the Insolvency Law to protect businesses and Directors during the COVID-19 crisis and to allow companies to “emerge intact on the other side”.
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 forcing administration 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;
- a new restructuring plan, binding creditors to that plan; and
- key safeguards for creditors and suppliers to ensure they are paid during the moratorium.
In addition, the government will also temporarily suspend the wrongful trading provisions to give Directors greater confidence to use their best endeavours to continue to trade without the threat of personal liability should the company ultimately fall into insolvency.
The current insolvency rules stipulate that Directors of limited liability companies can become personally liable for business debts if they continue to trade when there is uncertainty as to whether their businesses can continue to meet its obligations.
The relaxation of these rules is aimed to reassure Directors that the tough decisions about the future viability of their business can be made without fear of penalty.
The government will legislate for this temporarily suspension to be applied retrospectively from 1st March 2020 for a period of three months but there will be provisions to enable the period to be extended if necessary.
However, the existing laws on fraudulent trading accompanied by the threat of director disqualification will continue to be fully in force.
Mr Sharma said “Today’s measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”
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