On 28 March 2020, Business Secretary Alok Sharma announced plans to make changes to the UK insolvency regime in response to the COVID-19 pandemic. The main purpose of these changes is to give companies facing insolvency the necessary breathing space to continue to operate during lockdown, without the threat of personal liability or enforcement of debts from creditors. Full details of the proposed changes are yet to be published, however at present they will consist of:
- A temporary suspension of the wrongful trading provisions set out in the Insolvency Act 1986, which impose personal liability on company directors where a company continues to trade when it is insolvent. It is unclear as to how the changes will be implemented, however the government has proposed that the changes will be applied retrospectively from 1 March 2020 for three months, to allow companies to continue operating even when facing the threat of insolvency.
- Implementing new rules to allow companies that are undergoing a rescue or restructure process to continue trading. These proposals aim to prevent such companies from being put into administration and allow them to continue to access supplies and raw materials while restructuring or while a rescue is ongoing.
The aim of these measures is to provide companies facing the threat of insolvency with greater flexibility to “weather the storm” and to protect the interests of creditors. We will continue to monitor the situation for further announcements and provide information on these new measures when it becomes available.