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Covid-19 – Issues for Directors around wrongful trading

wrongful trading issues

It is nearly a month since the announcement on the 28 March by the Government that it would be temporarily suspending the provisions relating to wrongful trading.

At the time of writing the legislative provisions have not yet been debated. The objective of the government at the time was “to help UK companies which need to undergo a financial rescue or restructuring process to keep trading” and the suspension if the wrongful trading was just one of the measures announced.

The suspension of the provisions was announced to be effective for a period of three months and was to apply retrospectively from 1 March 2020.

Whilst we wait for the details of the legislation it is not clear how ultimately the suspension will be implemented by the Courts.

The announcement of the provisions made no distinction between businesses struggling before the suspension of the provisions and those who only began to struggle as the impact of Covid-19 became an issue for them. However, Directors need to be aware that ultimately the suspension may only alter the quantum of their liability if ultimately, they are faced with a claim for wrongful trading.

Directors also need to keep in mind that the provisions relating to fraudulent trading and misfeasance have not been suspended and will still give them personal liability for the Company’s debts if the Courts find them guilty of either offence.

For any issues relating to insolvency please take a look at our Insolvency service page. If you require any advice relating to your business please do not hesitate to contact me on darren.stone@cognitivelaw.co.uk

Darren Stone