The outbreak of COVID-19 has proved to be just as unpredictable with its impact on the corporate and commercial world as it has been for health, travel and education. As a response, the recently enacted Corporate Insolvency and Governance Act 2020 has introduced temporary COVID-19 inspired provisions, in an attempt to better manage the uncertainty at both the present time as well as going forward.
Between 1 March 2020 to 30 September 2020 (known as the “relevant period”) wrongful trading provisions have been suspended; meaning directors will not be assumed by the courts to be held responsible for worsening the financial position of a company between March and September. Of course, depending on the events and developments which occur in the interim, this period may well be extended.
The result of this suspension is of large significance, as administrators and liquidators alike are unable to bring claims forward against company director’s for losses caused by trading at present. However, caution must still be exercised, as the suspension does not apply to directors breaching their other statutory duties, for which they could still have claims brought against them. Furthermore, the suspension does not apply to building societies, insurance companies and most other financial institutions.
Another temporary provision to note is the prohibition on presentation of winding-up petitions, again where the “relevant period” between March and September 2020 applies. Whilst this applies to registered companies, similar provisions also apply to unregistered companies.
Of course, again directors must not consider this to be a blanket protection at this time. If a creditor could argue or assert that COVID-19 has not had a financial impact on the company, and that the issue of debt would have come about anyway, a petition could survive the temporary prohibition.
It is clear therefore that directors should not see this unprecedented time as a shield to any other potential breaches of their duties, or as protection from insolvency petitions when debt issues arise. O’Donnell Solicitors are here to advise you on Insolvency matters and all your other Commercial and Corporate Law queries. Contact us at Appleby’s Business Centre, 1-3 Mossley Road, Saddleworth, Grasscroft on 01457 761 320 or email email@example.com