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New measures have been announced to help businesses avoid insolvency

March 31, 2020

The advice in this article is correct as of Tuesday 30th March 2020. Please check our COVID-19 Business Portal for the latest information.

Avoiding insolvency

On Friday 28th March 2020, Business Secretary, Alok Sharma announced two key measures which the government is introducing, designed to help businesses navigate through the current COVID-19 climate to avoid business insolvency. These measures have been put in place for UK businesses to avoid collapse and continue trading.

The two key measures:

  • A temporary three-month suspension of the wrongful trading laws, commencing from 1st March 2020.
  • Companies that are undergoing a restructuring process may continue to purchase raw materials and supplies. New rules will be introduced.

These steps taken by the government to try and help businesses and their directors through an unprecedented challenge are welcome.

Although designed to protect creditors, there will be concerns over the suspension of the wrongful trading laws. Such a suspension could be abused by directors of businesses with no prospects of avoiding insolvent liquidation, or for whom COVID-19 is not the reason they find themselves in difficult situations.

As stressed by Alok Sharma, these measures should not be seen as a green light to trade on regardless. All other directors’ duties need to be complied with, with regard to the company, and in particular to its creditors where the company is either insolvent or is likely to become so.

Should company directors have any concerns about the solvency of their company or its ability to trade back into a solvent situation, they should seek advice from their professional advisors. This may require an ongoing regular assessment due to the fast pace of events.

For advice on any of the information in this article, or if you need help with any other issues please click here to get in contact with us.

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