The temporary suspension of liability for wrongful trading was originally introduced in March 2020, under section 12 of the Corporate Insolvency and Governance Act 2020. Apart from a small period between 30 September and 26 November 2020, the suspension has been in place until 30 June 2021.

This means UK directors could now be subject to a wrongful trading claim. A claim could hold them personally liable if they continued to trade knowing there was no reasonable prospect of the company avoiding going into liquidation, and subsequently closed the business through liquidation or administration.

What does this mean now?

During the suspension, directors still had to adhere to their other statutory duties, but it removed the threat of personal liability should they have continued trading through the pandemic. As of 1 July 2021, if a liquidator’s or an administrator’s investigations reveal the company continued to trade, worsening the company’s financial position, the directors could find themselves liable for losses to the company or its creditors.

What should company directors be doing?

Best practice hasn’t changed since the wrongful trading suspension came in and went out again. When the business isn’t trading well, the directors need to take the right steps to prevent and minimise losses to their creditors.

DO:

• Regularly review and document financial forecasts to monitor the financial position of the business. This will evidence your work on monitoring the viability of the business and promptly identifying cashflow issues.
• Keep a detailed record of board meetings and when key decisions are made, such as the decision to continue trading. Don’t be tempted to rely on memory for the rationale – a third party needs to see this in black and white.
• Close the business if the evidence is telling you there’s no reasonable prospect of avoiding insolvency.

DON’T:

• Give preferential treatment to any creditor.
• Assume you know all the options available to your business without speaking to your accountant and/or an insolvency professional.
• Gamble on everything returning to normal – your business most likely will have to change in some form, and that’s OK!

Protection still exists.

Although the suspension of liability for wrongful trading is no longer in place, company directors are still protected from statutory demands being issued (extended until 30 September 2021), winding up petitions, if the inability to pay was COVID-19 related (extended until 30 September 2021), and eviction from commercial premises (extended until 31 March 2022).

It’s good to talk.

We always encourage business owners to talk with creditors and suppliers when times are difficult, because there’s no reason an agreement can’t be reached. That opportunity reduces the longer issues are left without discussion or attempts at resolution.

Make that decision today to pick up the phone to our team and get some advice.

Call 0808 196 8676 or email help@trusolv.co.uk