IoD calls for extension of emergency insolvency measures

The Corporate Insolvency and Governance Act 2020 introduced, amongst other protective measures, a time-limited “suspension” of liability for wrongful trading which currently runs from 1 March to 30 September 2020 (“the Exemption Period”).  This temporarily “relaxed” the liability of directors who have failed to cause a company to cease trading in circumstances where they knew or ought to have known that there was no reasonable prospect of Liquidation or Administration being avoided.  Put simply, the effect of the “relaxation” is to absolve directors of liability for any worsening of a company’s final position during the Exemption Period but not to enable them to avoid a finding that they traded wrongfully within that period.

Given the imminent expiry of this protection, The Institute of Directors (“IOD”) is calling for the “protection” to be extended to the end of 2020 so as to aid the economic recovery from the pandemic and safeguard jobs.  According to Roger Barker, Director of Policy and Corporate Governance at the IOD, “Directors must be in a position to see their organisations through the crisis, they shouldn’t be penalised for acting responsibly amid unprecedented circumstances.” To read the full IoD article click here.

Directors should be aware that whether or not the “suspension” of liability for wrongful trading is extended, they remain at all times subject to their general director’s duties under the Companies Act 2006 which include a duty to promote the success of the company and a duty to exercise reasonable care, skill and diligence.  The “protection” will not therefore enable them to avoid other potential personal liability, for example, for breach of duty, nor will it impact upon potential disqualification proceedings and early advice is recommended for directors of companies experiencing financial difficulties.

Sarah Mower specialises in business insolvency and restructuring within the Business Services department at Barker Gotelee Solicitors in Ipswich.

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