UK Insolvency Framework Restructure and Wrongful Trading Provisions Temporarily Suspended

On 28th March the business secretary announced new restructuring tools to the existing UK insolvency framework and temporarily suspended the wrongful trading provisions retrospectively from 1 March 2020 for three months.

Sharma said that these changes would enable companies to continue buying supplies, such as energy, raw materials or broadband, while attempting a rescue.

As part of his insolvency package, the business secretary introduced three new tools to the UK’s insolvency framework:

a moratorium for companies giving them respite from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;

protection of their supplies to enable them to continue trading during the moratorium; and

a new restructuring plan, binding creditors to that plan.

The guidance also pointed out that safeguards are in place to ensure creditors and suppliers are paid while a solution is sought. This new legislation will see directors through 1 March 2020 to 31 May 2020, and the business secretary has the option to extend that period even longer if the crisis continues to intensify.

The existing wrongful trading rules had caused concern for directors, as they would have been personally liable if they knew there was no reasonable prospect of avoiding insolvent liquidation or administration. With the crisis serving an economic blow across many sectors and businesses, directors had still been reluctant to take out the loans to cushion the damage of COVID-19.

However, the government is still enforcing the existing laws against fraudulent trading and the treat of director disqualification as a deterrent against misconduct.


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