A lifeline to businesses: changes promised to the ‘wrongful trading’ provisions of current UK Insolvency legislation

Kerman & Co. website
March 30, 2020 Advisory

At the end of a week that saw wide-scale reporting that the Italian restaurant chain Carluccio’s is the latest high street name threatened with insolvency, with the risk to a further 2,000 jobs, the Business Secretary Alok Sharma announced on Saturday (28 March) a temporary, three-month, suspension of the wrongful trading provisions of the UK’s Insolvency legislation.  For further information about the key risks for directors during the COVID-19 crisis see this article.

The wrongful trading provisions set out in section 214 of the Insolvency Act 1986 provide that a director will be personally liable to contribute to the assets of a company if, before the company went into liquidation or entered administration, the director knew or ought to have concluded that there was no reasonable prospect that this could be avoided and they failed to take every step that ought to have been taken to minimise the potential loss to creditors.

The promised relaxation of the rules against wrongful trading will be particularly helpful in the current very difficult climate, so that businesses can continue to trade, and incur liabilities, in circumstances where a prudent board of directors may otherwise have chosen to ‘shut up shop’ and place the company into liquidation or administration rather than face the risk of a subsequent claim against them personally. As Mr Sharma said, the changes would mean that otherwise viable businesses can “emerge intact the other side of the Covid-19 pandemic”, and further wide-scale damage to the economy can be avoided.

Helpfully, these changes will be retrospective covering the period from the beginning of March 2020.

The Government has said that other temporary measures being implemented include enabling companies to buy much needed supplies, such as energy and raw materials, while attempting a corporate rescue.

Legislation to implement these changes will be introduced into Parliament at the “earliest opportunity

Originally published at Kermanco.com prior to the firm’s combination with Armstrong Teasdale in early 2021.

Contact Us
  • Worldwide
  • Boston, MA
  • Denver, CO
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Wilmington, DE
Worldwide
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
3770 Howard Hughes Parkway
Suite 200
Las Vegas, NV 89169
Google Maps
Las Vegas, Nevada
London, England
200 Strand
London, WC2R 1DJ
Google Maps
Miami, FL
3250 Mary Street
Suite 102
Coconut Grove, FL 33133
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
201 South Main Street
Suite 750
Salt Lake City, UT 84111
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Wilmington, DE
300 Delaware Avenue
Suite 210
Wilmington, DE 19801
Google Maps
Wilmington, Delaware