Proposed changes to the UK Insolvency Framework and the temporary suspension of wrongful trading

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The UK government has announced that it will introduce legislation at the earliest opportunity to, among other things, give businesses greater flexibility to help them emerge intact at the end of the pandemic.

With the overriding objective of helping companies which need to undergo a financial restructuring or rescue process to continue trading, the proposed measures will give those businesses extra time and space to weather the storm whilst ensuring that creditors get the best return possible in the circumstances.

The government previously consulted on proposed changes to the UK’s insolvency framework and is now looking to introduce reforms including:

  • a moratorium for companies giving them breathing space 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.

In addition to this, the government has announced a temporary suspension of the wrongful trading regime, with retrospective effect from 1 March 2020, to remove the threat of personal liability for directors.

The devil will be in the detail on the suspension of wrongful trading to ensure that it is not abused. However, for companies genuinely struggling as a result of the effects of Covid-19 this will provide directors with some valuable reassurance. It was stated that all other checks and balances to ensure directors fulfil their duties properly will remain in force and, in the zone of insolvency, this means that directors will continue to have regard to the interests of creditors.

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