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COVID-19: Corporate Insolvency and Directors’ Duties

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In these unprecedented and uncertain times Insolvency Practitioners are likely to be inundated with requests for urgent advice and assistance as many companies and their directors will be concerned that the disruption caused by the measures enacted by the Government due to the COVID19 pandemic could abruptly force their business into an insolvency scenario.

The Chancellor has announced a package of measures available to assist businesses which are discussed in more detail in a specific article from our Banking & Finance team which is available here.

The UK government is considering what emergency legislation could be enacted to help struggling businesses. In Germany, we have seen a suspension on the usual obligation on companies to file for insolvency within 3 weeks of the directors becoming aware that the company is likely to become insolvent. This has been enacted in order to ensure that companies effected by the coronavirus do not need to file for insolvency as a result of government aid not reaching them in time.

UK directors will be conscious of their obligations not to trade a company whilst insolvent and risk being found guilty of wrongful trading and as a result becoming personally liable for company debts. It remains to be seen whether the UK Government will enact a similar measure to that in Germany in an attempt to protect companies and jobs. It has therefore become even more difficult in the current climate for directors to establish a point in time when insolvency cannot reasonably be avoided. Directors should seek advice immediately and ensure that they can demonstrate that in this uncertain economic climate, they have considered the financial position of the company and have fully recorded such considerations and deliberations.

R3, the Association of Business Recovery Professionals are canvassing suggestions from stakeholders and urgently considering all suggestions and liaising closely with Government Departments on what measures, short of legislation, may be of assistance in the circumstances. This is a very fluid and constantly evolving situation. We are monitoring the situation closely and will provide further updates as and when further information on the measures to be enacted by the Government have been announced, which we hope will be in the very near future.

This item is a brief outline of the legal issues arising and is not intended to provide a comprehensive or detailed statement of the law. Specific legal advice should be sought on the circumstances of a particular case from a professional advisor. Please contact our Insolvency & Business Restructuring team at Cleaver Fulton Rankin for further advice or information.


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Rachel Kelly

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