COVID-19: Government proposal to help businesses avoid insolvency

20 April 2020 | Raj Laxman

On the 28 March 2020 Alok Sharma the Business Secretary proclaimed government proposals to adjust the insolvency laws to enable companies to have a fighting chance to continue trading whilst the Government considers rescue packages to help businesses avoid collapsing into insolvency.

Restructuring 

The Business Secretary is considering a restructuring moratorium to enable some protection for companies from creditors applying to the courts to enforce a debt. This intervention will allow companies to remain trading whilst the moratorium is in force. This intervention by the Government will be compulsory on creditors. The Government proposal include safeguards for creditors to ensure that creditors are protected and that they will get payment whilst this matter is addressed.

The existing insolvency laws will hold a director liable on a personal basis if he wrongfully trades when there is a doubt about the limited company’s ability to pay its creditors. The Business Secretary intends to briefly suspend the Companies Act 2006 on the ground of wrongful trading, applying retrospectively from the 1 March 2020 for an initial period of three months. The Government hope this will enable directors to use their best abilities to trade through these unprecedented times without the risk of personal liability if the company were to become insolvent. As a preventive deterrent measure, the Business Secretary will continue with current insolvency laws on fraudulent trading.

The Business Secretary has indicated that legislation to adopt these changes will be introduced in Parliament at the earliest opportunity in light Covid 19’s impact on the business community.

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