This suspension is in the same terms as that originally introduced by the Corporate Insolvency and Governance Act 2020 for the period from 1 March to 30 September 2020, but which was allowed to lapse on that date. Coronavirus restrictions were in a very different place in September, but now that we're back into a national lockdown facing further tough restrictions - and in the run up to Christmas, a critical trading time for many businesses - the decision has been made to once again remove the threat of wrongful trading liability from directors pursuant, to The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020.
Wrongful trading is the main deterrent for directors against continuing to trade where there is no reasonable prospect of avoiding liability and this measure is designed to help directors of companies which are viable but for the effect of coronavirus navigate through the continuing significant economic uncertainty. However, while this development will provide some comfort for directors, directors should remain alive to their broader directors' duties which have not been affected, including their duty to take into account the interests of creditors where there is a likelihood of insolvency. This suspension will not alleviate directors' concerns completely.
Technically, there appears to be a gap when wrongful trading liability will remain live between the two suspensions (ie. between 30 September and 26 November) but it remains to be seen whether this will have any real impact in practice.
The other key temporary measure in the insolvency sphere is of course the temporary restrictions on statutory demands and winding up petitions, which were extended in September until 31 December 2020. For more details, see our briefing here. These measures have not been extended beyond the end of the year by the new regulations, but the odds in favour of such an extension over the coming weeks must be increasing.
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"Whilst these measures may be somewhat helpful in reassuring directors about personal financial consequences of wrongful trading, when companies face financial difficulties it is still important for directors to seek expert professional advice and this will normally include an assessment of directors' duties as well as whether the wrongful trading test has been triggered. It will be even more important in many businesses to understand whether landlords will be able to take enforcement action post 31 December."
Giles Boothman, RSSG Partner
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For more on this topic, please get in touch with your usual Ashurst contact.
