Insolvency threat lifted for firms hit by outbreak

THE Government has relaxed insolvency rules to give bosses more breathing space when their businesses are hit by coronavirus.

Alok Sharma, the Business Secretary, announced yesterday that struggling companies would be able to access supplies and raw materials while restructuring their finances.

There would also be a temporary suspension of wrongful trading rules, applied retrospectively from March 1, meaning that company directors would not be personally liable for their decisions during the pandemic. He said: “It is crucial when the crisis passes, as it will, we are ready to bounce back.

“These measures will give firms extra time and space to weather the storm and be ready when the crisis ends while ensuring creditors get the best return possible in the circumstances,”

“However, to be clear, all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force.”

Business leaders welcomed the decision. Suren Thiru, head of economics at the British Chambers of Commerce, said: “It is right that the rules on wrongful trading are temporarily suspended

‘It’s vital that government support packages reach businesses and people on the ground as soon as possible’

to ensure directors are not penalised for doing all they can to save companies and jobs in this turbulent period.

“Companies that were viable before the outbreak must be supported to ensure they can help power the recovery when the immediate crisis is over.”

But he added: “Cashflow remains an urgent concern for many businesses, so it’s vital that government support packages reach businesses and people on the ground as soon as possible.”

Jonathan Geldart, head of the Institute of Directors, said: “We are very pleased the Government has listened to the concerns of directors and announced these welcome measures.

“These are pragmatic steps to provide relief during this unprecedented period. The temporary suspension of ‘wrongful trading’ will help to avert entirely preventable corporate collapses.

“It’s absolutely right that the Government should look to prioritise jobs and business survival.”

Wrongful trading rules were introduced in 1986, making directors personally liable for continuing to trade if they know the business is going under.

But R3, the insolvency and restructuring trade body, warned that suspending the rules risked market abuse.

Christina Fitzgerald, of R3, said: “A blanket suspension of the wrongful trading provisions would be wrong. The provisions are there for a reason and protect creditors from higher losses than they might otherwise see.”

Meanwhile, Mr Sharma urged businesses to conduct any shareholder meetings so they remained compatible with public health guidance.

“This might include postponing or holding the AGM online, or by phone using only proxy voting,” he said.