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COVID-19: The UK government prepares to give companies some financial breathing space

In what is good news for many organisations struggling with the economic challenges posed by Covid-19, the UK's Business Secretary announced over the weekend that the government will push forward with various reforms to the English insolvency laws; in effect fast tracking reforms that were under discussion back in 2018. 

The announcement did not give a date for when the reforms will come in, and Parliament is currently in Easter recess, however, as noted by the Business Secretary in his televised address on Saturday, it is clear that this is a priority area for the government.

The reforms are aimed at assisting businesses in the current climate, providing breathing space and attempting to stave off the feared tidal wave of insolvencies that will arise as a result of global economic inactivity due to Covid-19. There is a risk of course that they will also enable dishonest directors to use the rules to their advantage and so government is rightly concerned with putting in place checks and balances to prevent abuse.

The reforms include:

  • A temporary cessation of the rules on wrongful trading to protect directors from personal liability for trading when technically insolvent. This is aimed at allowing companies to pay staff and suppliers even if there are fears of insolvency. Of note, the proposals are that the suspension of s214 Insolvency Act 1986 will be retrospective with effect from 1 March 2020.
  • A temporary moratorium on liquidation, which will prevent creditors putting companies into liquidation if they are undergoing restructuring for a longer period than that currently provided.

The government's position will find favour with most organisations and those who represent them and many are responding to the highlighted reforms, for example the City of London's Insolvency Law Committee has issued a discussion paper on how best to mitigate the effect of Covid-19, available at this link.

HFW's Fraud and Insolvency team will track the reforms and issue an update when there are developments to report.

For more information, please contact:

Rick Brown
Partner, London
T +44 (0)20 7264 8461
E rick.brown@hfw.com

This article was first published on LinkedIn on the 30 March 2020 and can be viewed here.

We are working with clients across our international network to help them minimise the impact of COVID-19 on their business and to prepare for what's next. To find out more, visit our dedicated Covid-19 hub.

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