The Corporate Insolvency & Governance Bill – Further Extension of Temporary Measures, Liability for Wrongful Trading to be Reinstated, Other Support Methods to be Introduced

Although ‘Freedom Day’ has now taken place, the financial damage done by the lockdowns is not to be under estimated.

Continued restrictions on winding-up petitions

It is no doubt with the financial difficulties created by the lockdowns in mind that the Government has extended the prohibition on presenting winding up petitions based on statutory demands until 30 September 2021.  Until that date, any petitions presented on the ground that a company is unable to pay its debts as they fall due, remain restricted, unless the creditor can establish that the inability to pay is not linked to the Covid-19 pandemic. 

This was confirmed in a press release from the Government published on 16 June 2021.  There is no indication in this press release, that the liability for wrongful trading would remain suspended.

Wrongful trading

Directors must therefore assume that from 1 July 2021, the previous relaxation of directors’ personal liability for wrongful trading has come to an end. 

Wrongful trading refers to the liability of a director of a company which continues to trade at a time when its directors (should have) concluded that there is no reasonable prospect of the company avoiding insolvent liquidation or insolvent administration.  If a company continues to trade after this moment in time, then the directors are under an obligation to take every step possible to minimise losses to creditors. If they fail to take these steps, then directors can be ordered by the court to personally contribute to the company’s assets.

If directors are any way concerned that their company may be insolvent, then they need to seek appropriate advice.

Protection of commercial tenants

Other measures announced by the Government in the 16 June press release aim to protect commercial tenants from action taken by their landlords for rent arrears which have accrued during the lockdown period. 

The Government has said that it will introduce primary legislation in the current Parliamentary session, to ring fence rent arrears built up when a business has had to remain closed during the pandemic.  Landlords are expected to make some allowances for the ring-fenced rent arrears and share the financial impact with their tenants. 

According to the Government the legislation will help tenants and landlords work together to come to an agreement on how to handle the money owed – this could be done by waiving some of the total amount or agreeing a longer term repayment plan. If an agreement cannot be made, then the Law will ensure a binding arbitration process will be put in place so that both parties can come to a formal binding agreement. 

In order to ensure landlords are protected, the Government made clear that businesses who are able to pay rent, must do so, and that tenants should start paying rent as soon as the restrictions change, and they are given the green light to re-open. 

The existing measures in place to protect commercial tenants from eviction, will be extended to 25 March 2022.  The reason behind this, is is to ensure that tenants have enough time to come to an agreement with their landlord without the threat of eviction.

Next Steps

Petra van Dijk is a Senior Associate Solicitor in Spratt Endicott’s Dispute Resolution practice, specialising in contentious and non-contentious insolvency. Contact Petra on pvandijk@se-solicitors.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation. This article is accurate at time of publication on 23rd of April 2021.