The Corporate Insolvency and Governance Act (the Act) came into force on 26 June 2020 to help businesses to survive the global Covid-19 pandemic and provide temporary protection to directors’ personal liability. The Act has now been amended once again, this time by The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 (the Regulation) which came into force on 26 November 2020.
Suspension of wrongful trading provisions
A key provision of the Act was to suspend directors’ liability for wrongful trading under s.214 of the Insolvency Act 1986. The aim was to protect directors and encourage them to continue trading throughout the pandemic without the worry that they would be personally liable to the company’s creditors if the company were to enter insolvency.
The suspension of wrongful trading under the Act initially ended on 30 September 2020, however under the new Regulation this suspension will be brought back into force from 26 November until no earlier than 30 April 2021. Directors should note that this does not provide complete protection to wrongful trading but merely mitigation for the court’s consideration and that they may still be liable for other breaches of fiduciary duty.
Restriction on presenting winding up petitions
The Act also brought into force a temporary restriction on creditors presenting winding up petitions to companies insolvent due to the pandemic. This was initially due to end on 30 June 2020 but has been extended, originally to 30 September 2020 and more recently 31 December 2020. Although the Regulation has not yet extended this prohibition any further, the re-introduction of the suspension of wrongful trading suggests that a further delay may be coming.
If you are worried about the impact the pandemic is having on your business or you are an officeholder looking for specialist insolvency lawyers to assist you, please get in contact Juliet Schalker or Alexander Neale.
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