On 28 March 2020, in response to the COVID-19 pandemic, the Government announced changes to the insolvency regime in order to allow UK companies to continue trading when faced with possible concerns over solvency.  

These changes include the suspension of wrongful trading provisions which will apply for a period of three months, from 1 March 2020. The Government may extend this period if necessary.  The suspension of wrongful trading will form part of a range of measures to be introduced to improve the insolvency system for struggling companies. The overriding objective will be to help companies to keep trading, by providing them with extra time and space to weather the current storm.

By introducing these changes, it is intended that companies will be able to maintain trading whilst continuing to purchase goods and services from their suppliers. It is intended that this will remove directors from the threat of legal action and the threat of incurring personal liability for failing to discharge creditor liabilities as and when they fall due.  It goes without saying that every care should be taken when considering withholding payment from a supplier and that ultimately these obligations will have to be repaid.  Please note, existing legislation remains in force in relation to fraudulent trading, director disqualification and director’s duties in general.   In addition, at present there is little by way of supporting guidance in relation to the recent announcements.  Therefore, businesses would be advised to operate with a degree of caution. 

Businesses should always seek professional advice in circumstances where there are concerns regarding insolvency.  We will submit updates as when further details of the changes are announced.

Should you require any further guidance in relation to the matters covered in this article, do not hesitate to contact us on 0161 941 4000 or via email.