Suspension of Wrongful Trading Provisions in the UK

2 June 2020
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Update: the Corporate Insolvency and Governance Bill became law on 25 June 2020. The Bill was amended during its passage through Parliament and section 12(2)(b) of the Act now provides that the “suspension of liability” for wrongful trading applies from 1 March 2020 to 30 September 2020, and may be extended further.

The insolvency-related measures introduced by the UK Government in response to the Covid-19 pandemic have been widely publicised. In this update, Debevoise & Plimpton looks at the impact of the suspension of the wrongful trading provisions set out in the Insolvency Act 1986.

  • On 28 March 2020, the UK Business Secretary announced a number of insolvency-related measures aimed at protecting otherwise viable companies affected by the Covid-19 pandemic.
  • Those measures, set out in the Corporate Insolvency and Governance Bill published on 20 May 2020, are wide-ranging and include a moratorium for financially distressed companies, a prohibition on termination of certain contracts, a new Restructuring Plan and restrictions on the presentation of winding-up petitions.
  • This client update focuses on the proposed suspension of the wrongful trading provisions contained in the Insolvency Act 1986 and its potential impact on directors facing personal liability for continuing to trade during such uncertain times.
  • Directors should, however, be mindful that other provisions giving rise to personal liability remain in force. Similarly, consideration of directors’ duties should remain at the forefront of any decision-making.