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Experiencing trading difficulties? New insolvency rules could save businesses
31 Mar 2020
The latest measures announced by the UK Government to support businesses battling through the coronavirus pandemic aim to help thousands of businesses which could otherwise go under.

Gareth Ruddock, a partner with FBC Manby Bowdler’s Insolvency Team, says: “The changes announced by the Government to existing insolvency laws will ease pressure and help firms undergoing rescue or restructure to continue trading and avoid insolvency.”

What are the new insolvency rules?

A temporary suspension of wrongful trading provisions has been brought into effect from March 1, 2020. This allow company directors to continue trading through the pandemic without the threat of personal liability should the company ultimately fall into insolvency.
Under the new measures, companies undergoing restructuring will be allowed to continue purchasing essential supplies such as raw materials, broadband and energy while attempting a rescue.

When were they announced and why?

The new measures were announced on March 29 to ease pressure on companies and give them breathing space to trade through the COVID-19 crisis.

What is the point of the new insolvency rules?

To make sure as many businesses as possible survive the coronavirus crisis. The changes will give companies the space needed to avoid insolvency whilst also making sure that creditors get the best possible return in the current circumstances. The measures also seek to enable UK-based companies that are undergoing a rescue or restructure process to continue trading. It’s also hoped similar measures have already been implemented in Germany, Australia and the Netherlands.

When does it apply from?

The Corporate Insolvency and Governance Act has received Royal Assent and came into force on 26 June 2020. For more information click here.

What if we are already trading at a loss and not because of coronavirus?

1. The amendments don’t give business directors a green flag to continue trading if creditors are getting into a worse position. For a business trading at a loss that isn’t entirely attributable to COVID-19, directors should look to deal with any issues they can including restructuring the business to focus on the most profitable parts.

If I am continuing to supply a business and it then becomes insolvent will I get funds back?

The new measures include safeguards for creditors and suppliers to assist with repayment.