Coronavirus: company rule changes protect firms trading while technically insolvent

As companies lose footfall, orders and customers and see their cash flow disappear, the Government’s business secretary Alok Sharma has announced plans to protect firms who are technically insolvent during the coronavirus crisis.

The wrongful trading law is to be suspended so as to protect directors who pay staff and suppliers while their firm has a drastically reduced income or indeed no income at all. The business secretary announced he will make changes to enable UK companies undergoing a rescue or restructure process to continue trading, giving them breathing space that could help them avoid insolvency.

This will also include enabling companies to continue buying supplies, such as energy, raw materials or broadband, while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.

Alok Sharma said: “The government is doing everything in its power to save lives and protect livelihoods during these unprecedented times. Applying a common-sense approach to regulation will ensure products are safe and reach the market without any unnecessary delay, getting vital protective equipment such as face masks to frontline staff as quickly as possible.”

Ian Carrotte of ICSM Credit said: “The measures are designed to keep businesses afloat during the crisis when they don’t in reality have any business. Department stores, shopping centres, chain stores and many manufacturers have been left high and dry and in normal circumstances would seek administration. With no end date to the crisis uncertainty has infected British business from top to bottom. The changes will help many firms survive the emergency.”

The business minister said the wrongful trading law would be suspended to protect directors during the pandemic. The move will allow directors of companies to pay staff and suppliers even if there are fears the company could become insolvent.

For the British Chamber of Commerce Suren Thiru said: “Companies that were viable before the outbreak must be supported to ensure they can help power the recovery when the immediate crisis is over. Cashflow remains an urgent concern for many businesses, so it’s vital that government support packages reach businesses and people on the ground as soon as possible.”

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