Wrongful Trading Laws Suspended
The UK government has suspended the wrongful trading laws for companies. The wrongful trading law obliged directors to put a company into a formal insolvency procedure like liquidation or administration as soon as he realised that there was no realistic prospect of avoiding insolvency.
A director had the obligation to take all steps to avoid further losses to the company’s creditors.
The consequences of failing to comply with this law were that the directors could be held personally liable and be forced by a court to make a contribution personally to a liquidation.
This law forced many companies into appointing Insolvency Practitioners far too early, often before exploring viable restructuring options.
The law was suspended from March 1st due to the coronavirus business meltdown. No time period has yet been announced for the end of the suspension.
The UK government hopes that companies will find ways to restructure, perhaps by using the government’s loan guarantees. This suspension may help companies buy time access these bank loans.
Existing laws covering fraudulent trading and director disqualification remain in place during the business shutdown.