Business Recovery and Insolvency update: Extension of Corporate Insolvency and Governance Act 2020

Published: Monday 5 October 2020

In line with the extension of Government support schemes to assist Directors to navigate these unprecedented times, the Act has been extended in certain areas, including:

  1. The obligation to hold Annual General Meetings will continue to have flexibility to hold them virtually until 30 December 2020;
  2. Restrictions to issue statutory demands and seek winding up petitions will continue until 30 December 2020; and 
  3. Small suppliers will remain exempted from the obligation to supply where they are under contract to do so until March 2021.

Notably however, the suspension of wrongful trading has not been extended and expired on 30 September 2020. 

This means Directors, particularly those whose businesses are most affected by restrictions on trading, might now be brought to account for a company’s worsening financial position. 

Wrongful trading is where Directors should have concluded that the company is insolvent and is inevitably going to enter into liquidation or administration, but they continued to trade, not acting in a way to minimise the loss to creditors and by doing so, made the company’s financial position worse. In such a scenario the Insolvency Act allows an Insolvency Practitioner to apply to Court to challenge the actions of Directors and seek financial compensation from them. 

We would hope the Courts will support Directors who have honestly tried to preserve companies and the livelihoods of employees and suppliers, but extending the exemption would have continued to offer protection for those Directors and save them the additional worry and stress. However, where Directors should have reached the conclusion that insolvency was inevitable, either prior to or during the pandemic, we do see the logic in being able to ask them to support their decision to continue to trade, particularly where it has simply supported say their lifestyle, or ensured certain creditors are dealt with more favourably.

There are calls to extend the wrongful trading exemption, so watch this space…

Hazlewoods business recovery and insolvency team has extensive experience advising a variety of businesses and will work with you find the best solution for you and your business in difficult times. For more information, contact Pete Frost at peter.frost@hazlewoods.co.uk or 01242 680000.

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