Covid-19: Insolvency Legislation Changes
31 March 2020
On Saturday 28th March 2020, the Government announced that it will shortly be introducing amendments to Insolvency Law in light of the economic challenges that otherwise profitable and viable businesses are facing amid the COVID-19 pandemic. These amendments are important as they will give company directors more options to keep their businesses trading and provide a degree of comfort that some of the difficult decisions that are being made now, will not expose them personally at a later date.
The Government has said it will introduce:
- A short business rescue moratorium to protect companies from creditor action while they consider their options;
- A new court-based restructuring tool modelled on the pre-existing English Scheme of Arrangement;
- New rules to prevent suppliers from cancelling contracts with businesses in an insolvency procedure. This will provide vital access to supplies and raw materials, and facilitate the Business to pay staff and suppliers, even if the company could go into liquidation due to Covid-19;
- A temporary suspension to the wrongful trading provisions which will apply retrospectively from 1 March 2020. This will remove the threat of personal liability for Directors during the pandemic. Note all other checks aimed at Directors fulfilling their duties responsibly will remain in force; and
- Flexibility to Companies to hold Annual General Meetings, either by postponing the AGM or holding it online or by telephone using only proxy voting.
The full details of these proposals, and their application to Northern Ireland legislation, is expected in the coming weeks when Parliament returns from recess.
Whilst these changes to the underlying Insolvency Laws are welcomed in order to allow business owners to focus on survival and long term financial recovery, we would recommend that due consideration is still paid to every decision that is made by a Company Director in this period. Given that no indication has been provided in terms of a potential suspension of claims against Directors for other offences under Insolvency Law (for example, Transactions at Undervalue or Preference Payments), Directors should continue to seek professional advice if they are concerned about the underlying viability of their business and their associated personal obligations.
We will continue to monitor the changes to Insolvency law and provide further updates as new information becomes available.