Insolvency law relaxed to keep companies floated

The Government, on Saturday, 28 March 2020 announced that they are going to amend the insolvency laws to include a number of restructuring measures that will help companies to avoid insolvency.

The measures will specifically address UK companies that are undergoing a rescue or restructuring process to continue trading and avoid insolvency.

The new rules will provide those companies a moratorium period from their creditors. The creditors will not be able to enforce their debt for a period of time while the company seeks to rescue or restructure the business.

The measures will also enable these businesses to buy supplies and continue trade within this moratorium period.

The ‘Wrongful Trading’ provision for directors have also been suspended and will be applicable for 3 months retrospectively from 1 March 2020. Wrongful Trading is a provision in the Insolvency Act, 1984 which prohibits the directors from trading when a company is rendered insolvent and is unable to pay its debt. However, this new measure will allow the directors to continue trading and give them more flexibility to use their best endeavours to get the business out of insolvency during this pandemic period. The directors will not be personally liable if the company files insolvency later.

However, existing insolvency laws related to ‘Fraudulent Trading’ and ‘Threat of Director Disqualification’ will continue to be in force.

These new measures are aimed to provide a – ‘breathing space to keep the workers employed and the company going’, as expressed by the Business Secretary, Alok Sharma MP.

The full proposal will include safeguards for creditors and suppliers as well to ensure they are being paid while the company tries to rescue or restructure itself.

To get updated on the full guidelines regarding the matter as and when released by the government, keep an eye on Reddy Siddiqui LLP Coronavirus Hub.

For more information or advice, please Contact Us.

By Farhan A. Choudhury

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