In recognition of the position of vulnerability that many businesses find themselves in for an indefinite period, the Government has put forward a number of temporary proposals to alleviate the acute stress that businesses find themselves under. These were recently outlined by the Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma MP, and include the following:
- A temporary moratorium on enforcement action by creditors, so that those businesses with debts are given a chance to get through the crisis rather than being subjected to liquidation at such a difficult period.
- A temporary suspension of wrongful trading provisions for company directors found under s.214 of the Insolvency Act 1986. This will perform a critical role in ensuring that company directors do not find themselves personally liable during this period. The suspension has been backdated from 1 March 2020. Laws as to fraudulent trading and director disqualification remain in place, however.
- The prohibition of the enforcement of “ipso facto” clauses, which allow Party A to a contract to terminate it on the basis that Party B is insolvent or in a poor financial condition. This should be particularly effective in contracts for the supply of goods.
- Reforms to the corporate restructuring procedure, which will permit companies undergoing a rescue/restructure to continue trading and buy necessary supplies.
At the time of writing, there is little more detailed information available as to how these measures are to work in practice and when they are to be implemented in law. Parliament is currently in recess until 21 April 2020, but the Government has signalled its intention to pass legislation “at the earliest opportunity”.
We welcome this and hope the Government acts as swiftly as it can, so that the many thousands of otherwise successful and promising businesses forming the backbone of the UK economy are giving what they require to emerge through this unprecedented time.
Finally, it is worth noting the proposals outlined above are in addition to other more general recent measures announced to keep businesses going such as:
- Allowing AGM’s to be postponed or held either online or by telephone.
- The ability to apply for a 3-month extension to file company accounts. Businesses that cite issues relating to COVID-19 will be automatically and immediately granted an extension.
- The Coronavirus Business Interruption Loan Scheme, offering loans of up to £5 million for SMEs through the British Business Bank.
- A 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England.
- The option to defer VAT payments due between 20 March and 30 June 2020 until 31 March 2021.
Abeer Sharma is a Solicitor in Hanne & Co’s Property Litigation & Dispute Resolution Team