The government has suspended wrongful trading laws for three months to assist company directors in light of the Covid-19 pandemic. The suspension has been backdated to 1 March 2020.

Under insolvency law in the UK, if a director continues the trading of a business while it is insolvent, that director could be found to be wrongfully trading and made personally liable to make a contribution to the company’s assets upon subsequent administration or insolvent liquidation.

The suspension of the wrongful trading laws means that companies struggling as a result of Covid-19 are able to take advantage of loans and financial packages offered by the government without the threat of directors being made personally liable if the business does not weather the storm. It also allows creditors and employees to be paid where there is a risk of insolvency occurring.

Directors will still need to act in accordance with their other duties, including those under the Companies Act 2006 and laws relating to fraudulent trading and director disqualification will still apply.

Further changes to insolvency laws include the introduction of a temporary moratorium for companies – a period of time allowing them to restructure without creditors enforcing their debts.

For further advice on company matters or director’s duties, please contact Mark Lello at mark.lello@parkerbullen.com.

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Mark Lello

Senior Partner and Notary Public

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