Government relaxes insolvency rules

The government has announced a set of changes to help improve the insolvency system to enable companies undergoing restructuring to continue trading.

The relaxed measures announced by business secretary Alok Sharma, will allow companies undergoing restructuring to continue to access supplies and raw materials. It has also temporarily suspended wrongful trading provisions for three months with the backdated start period of 1 March. 

Previously, under the Insolvency Act 1986, boards had a strict duty to announce whether the company had stopped trading if the company was insolvent, or if insolvency could not realistically be avoided in the future.

However, as a result of the suspension, company directors will now be allowed to continue trading without facing the potential threat of personal liability.

Sharma said: “These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends whilst ensuring creditors get the best return possible in the circumstances.”

The move has been welcomed by the head of the Institute of Directors, Jonathan Geldart, who said the measures are the right “pragmatic steps to provide relief during this unprecedented period”. 

He said: “We are very pleased the Government has listened to the concerns of directors and announced these welcome measures. During the current crisis, directors are facing immense challenges and these are pragmatic steps to provide relief during this unprecedented period. 

“The temporary suspension of ‘wrongful trading’ insolvency provisions will help to avert entirely preventable corporate collapses. It’s absolutely right that the Government should look to prioritise jobs and business survival.”