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Law360, London (March 30, 2020, 11:53 AM BST ) The government plans to introduce emergency changes to overhaul insolvency laws and give "breathing space" to companies hit by the coronavirus crisis, the business secretary has announced, in a move to help prevent mass failures.
Laws that make it illegal for a business to trade when it is insolvent are set to be suspended, Alok Sharma said Saturday. The decision means companies and individuals that cannot meet their debts because of the coronavirus pandemic will not be forced to file for bankruptcy.
Current insolvency rules make it a civil offense for directors of limited liability companies to continue to trade when they are not certain that their businesses can continue to meet their debts, with directors becoming personally liable, the Department for Business, Energy and Industrial Strategy said in a statement.
Amendments to wrongful trading rules will protect directors during the pandemic by allowing companies to continue buying supplies, such as energy, raw materials or broadband, while they attempt a rescue, the government said.
The suspension be put in place retrospectively from March 1 for three months.
"Relaxation of these wrongful trading rules will reassure directors that the difficult decisions they have to make about the future viability of their business will not have to be unduly influenced by the exceptional circumstances which are entirely beyond their control," the government department added.
Prime Minister Boris Johnson's decision to order a nationwide "lockdown" of all non-essential businesses including restaurants and pub to help stem the spread of coronavirus has created an economic downturn. The shutdown has sparked fears of mass unemployment and financial stress.
Saturday's proposals also include a moratorium for businesses undergoing the restructuring process during which they cannot be put into administration by creditors.
Sharma said the measures will "reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going."
Legislation to introduce these changes will be laid before Parliament at the earliest opportunity, the business department said. Provisions will be included to enable the changes to be extended if necessary.
In addition, companies required to hold annual general meetings will be granted greater flexibility. They will be able to hold AGMs online, bringing them into step with public health guidance.
The measure follows an announcement last week that companies would automatically and immediately be granted a three-month extension to file their accounts to help them avoid penalties as they deal with the impact of COVID-19
Approximately 4.3 million businesses are required to submit their accounts to Companies House within nine month after the end of their financial year.
Chancellor Rishi Sunak has also told British companies struggling with coronavirus-related losses that they can have access to government-backed loans from retail banks through a £330 billion ($410 billion) program to keep them afloat.
--Editing by Ed Harris.
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