New insolvency measures to prevent companies unable to meet debts due to the impact of coronavirus from going out of business have been announced.
The Business Secretary has said he will make changes to allow companies undergoing a rescue or restructure process to continue trading, giving them “breathing space” that could help them avoid insolvency.
It will include enabling companies to continue buying much-needed supplies, such as energy, raw materials or broadband, while attempting a rescue.
And it also involves temporarily suspending wrongful trading provisions retrospectively from March 1 2020 for three months for company directors, so they can keep their businesses going without the threat of personal liability.
Business Secretary Alok Sharma said the measures would, “reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”
Mr Sharma also announced that the government would introduce legislation to ensure those companies required by law to hold Annual General Meetings (AGMs) will be able to do so safely, consistent with the restrictions on movement and gatherings introduced to address the spread of coronavirus.
Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings.
This measure follows an announcement that companies would automatically and immediately be granted a three-month extension to the filing of their accounts following a fast-track online process.
More than 10,000 businesses have already successfully applied for the extension.
The government previously consulted on changes to the corporate insolvency regime and announced plans to introduce new insolvency restructuring procedures in August 2018. The new legislation will implement these plans.
Current insolvency rules stipulate that directors of limited liability companies can become personally liable for business debts if they continue to trade when uncertain about whether their businesses can continue to meet their debts.
Relaxation of these wrongful trading rules will reassure directors that the difficult decisions they have to make about the future viability of their business will not have to be unduly influenced by the exceptional circumstances which are entirely beyond their control.
Matthew Fell, chief UK policy director at the Confederation of British Industry, said: “The temporary suspension of wrongful trading provisions, along with other measures, will give much needed headroom for company directors to enable otherwise viable businesses to use the government’s support package and weather this crisis.”