COVID-19 - temporary suspension of wrongful trading provisions coming to an end

In March 2020 the UK Government announced the suspension of the wrongful trading provisions contained in s.214 of the Insolvency Act 1986. Those provisions impose personal liability on directors found to have over-traded while a company was insolvent. By removing the risk of personal liability, the Government sought to provide directors with the personal protection they required to allow their businesses to continue trading through the pandemic. Our previous Perspectives article refers.

Enacted in s.12 of the Corporate Insolvency and Governance Act 2020, the suspension applies during the “relevant period” which began on 1 March 2020 and is due to end on 30 September 2020.

Whilst the number of infections has increased in recent weeks with new restrictions being introduced by the Government earlier this week although, stopping short of a second lockdown, the Government has not made any announcement regarding an extension to the “relevant period” in s.12. Whilst it is feasible it might do so in the coming days, particularly if infections continue to increase necessitating further restrictions, it is prudent for directors to prepare now for the possibility that the suspension will not be extended. 

Directors need to consider, therefore, whether they will be able to continue trading into October 2020 and beyond. Directors should begin taking steps now to protect their position, including by seeking to reduce capital outlay or recover monies, where there is a legal basis to do so. 

In particular, businesses should consider whether they have any claims arising out of COVID-19. To that end, Hausfeld’s £1 Million COVID-19 Commitment continues to operate. Hausfeld will commit up to £50,000 per case to investigate the viability and merits of any claim related to COVID-19. In the event a meritorious claim is identified, Hausfeld will work with clients - whether businesses themselves or office holders in the event an insolvency - to bring claims, including through the use of alternative fee structures where helpful.