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COVID-19: New Insolvency Laws During the Pandemic

COVID 19 - Changes to the New Insolvency Laws During the Pandemic

Saturday the 28th March 2020 was met with even more announcements for businesses in relation to the COVID – 19 crisis.

Business Secretary Alok Sharma announced new changes to insolvency laws during the pandemic. This is to continue to answer to the Governments overriding objective, in helping the UK companies that need to undergo a financial rescue or restructuring process, to keep trading.

The announcement by Alok Sharma gives firms extra time and space to weather the storm and be ready when the Covid 19 crisis ends.

The New Insolvency Laws During the Pandemic:

How will it impact supplying to businesses?

So far, it seems like the Government will extend the existing essential supplies regime under sections 233 and 233A of the Insolvency Act 1986, this proposal was made by the City of London Law Society. Currently, insolvency provisions prevent suppliers for utilities, in respect of gas, water electricity and other goods where the sole purpose of that supply is for the business to be able to function or facilitating anything to be done electronically, from terminating or threatening to terminate supply under a supply contract unless the business pays its arrears.

Changes to wrongful trading

Directors have expressed concern of personal liability for wrongful trading during the Coronavirus crisis.

Wrongful trading is a statutory offence under section 214 Insolvency Act 1986. Once a company’s directors conclude, or should have concluded, that there is no reasonable prospect of the company avoiding an insolvent liquidation or administration, they have a duty to take every step which a reasonably diligent person would take to minimise potential loss to the company’s creditors. A director failing to comply with this duty can be ordered to contribute to the company’s assets.

This section, means directors who continue to trade when they know, or it is believed they should have known that their company becoming insolvent then put themselves at risk of being held personally liable for its debts. Suspending this section due to the Coronavirus crisis is to ensure that businesses can continue to trade through during this crisis.

There are also announcements to follow on an extension to moratorium protection for companies that are currently undergoing the restructuring process, enabling companies with more flexibility during COVID 19.

Insolvency Advice

At CP Law Associates, we have expert lawyers trained in providing you with insolvency advice. If you are looking for advice on any insolvency matters please contact us below. 

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