Coronavirus: changes to insolvency rules to help businesses

On Saturday 28 March 2020, the Business Secretary, Alok Sharma, announced new insolvency measures to help businesses hit by the coronavirus crisis. Legislation is to be introduced in Parliament at the earliest opportunity. Significantly, there is to be a three-month suspension of the wrongful trading rules in order to remove the threat of directors incurring personal liability whilst trading during the pandemic. The change in law is to be applied retrospectively from 1 March 2020 for an initial period of three months. However, all other “checks and balances” that help to ensure directors fulfil their legal duties properly will remain in force.

Other new insolvency measures include allowing companies to continue to access essential supplies (such as raw materials, component parts, energy etc) while attempting to rescue the business. Companies undergoing a restructuring process will also be given a time limited moratorium or breathing space from creditor action. The aim is for directors to keep their businesses trading during the pandemic, paying their staff and suppliers, even if there are insolvency fears, without the threat of incurring personal liability. Speaking at a Downing Street press conference, Alok Sharma said he hoped the measures would give firms “greater flexibility” and the extra time and space they need to “weather the storm” and “emerge intact the other side” of the pandemic.

This Commons briefing paper considers the new insolvency measures and why they are considered necessary to help companies survive the pandemic. It will be updated with more detailed information once the proposed legislation has been published. This is a fast-changing situation and it is anticipated that the new measures announced, and the corporate insolvency framework, will continue to evolve in the coming weeks.