The Business Secretary, Alok Sharma announced plans to amend insolvency law to allow companies to keep trading while they explore options for rescue; and temporarily suspend wrongful trading provisions retrospectively from 1st March 2020.
This is undoubtedly good news for directors who are responding to the current fast-moving challenges posed by the Covid-19 pandemic, however the changes cannot be implemented immediately and directors are not yet off the hook.
As a director, you are still personally liable if your company trades whilst insolvent and ends up in a formal insolvency process.
Addressing business survival
So what breathing space do you have to keep your business going and preserve jobs? We expect the legislation to allow:
- breathing space from creditors enforcing their debts for a period of time while they seek a rescue or restructure
- protecting supplies enabling a company to continue trading during the moratorium
- safeguards for creditors and suppliers ensuring that they are paid while a solution is sought
- creating a new restructuring plan, binding creditors to that plan
- temporarily suspending wrongful trading provisions retrospectively from 1st March 2020 for three months
- providing provisions to enable the changes to be extended, if necessary.
The 6-step plan
So, what steps should you be taking to protect your business, and mitigate the risk of personal liability?
- Holding regular board meetings to assess the financial and trading position of the company.
- Proactively monitoring and managing creditors.
- Engaging with lenders and key stakeholders; taking advantage of Government schemes.
- Seeking and acting on appropriate professional advice, including legal, financial and others appropriate to your business.
- Ensuring that your business has appropriate insurance in place, including (but not limited to) D&O insurance.
- Keeping (and preserving) details and minutes of board meetings and noting decisions taken, and the reasons for taking those decisions.
What is clear that as long as directors of businesses which were financially sound prior to the Covid-19 crisis continue to act with integrity, then they will be able to benefit from the protection afforded by the proposed legislation.
If you are in doubt and need guidance on these or any other corporate governance issues which may arise, then please contact the HM Covid-19 Business Response team.
T: 01244 318131