Lifeline thrown to firms facing collapse

31 March 2020
Canva Close Up Photography of Sigage 2


Companies have been granted extra time to explore all options for rescue

The UK government has announced changes to insolvency laws in response to COVID-19, giving firms extra time and space to overcome financial distress. It spans two major areas as follows:

Wrongful trading: There will be a temporary suspension of wrongful trading provisions for company directors to remove the threat of personal liability during the pandemic, applied retrospectively from 1 March 2020.

New restructuring plan and moratorium: The government previously announced plans to introduce new restructuring procedures in August 2018. New legislation will implement these plans, including the ability to bind dissenting stakeholders to a new restructuring plan and a short moratorium or “breathing space” that will give companies in difficulty time to explore options for rescue. This will include protection of key supplies to enable companies to continue trading during the moratorium.


The government plans to bring forward legislation to this effect “at the earliest opportunity”. Exact timing remains uncertain. Provisions will be included to enable the changes to be extended if necessary. Parliament is currently in recess until 21 April.

Wrongful Trading

There will be a temporary suspension of wrongful trading provisions for company directors to remove the threat of personal liability during the pandemic, applied retrospectively from 1 March 2020. The current wrongful trading rules have been of concern to directors in recent weeks, given the risk of personal liability for directors if they fail to take every step to minimise potential losses to creditors, where there is no reasonable prospect of avoiding an insolvent liquidation/administration, which may have pushed the directors to commence insolvency proceedings prematurely. Existing laws for fraudulent trading and the threat of director disqualification will remain in force as a deterrent against director misconduct.


There is little detail on this measure in the government’s announcement, but it builds on reforms previously suggested We understand the government will fast-track these proposals because of the current crisis. The Secretary of State for Business, Energy and Industrial Strategy announced that the reforms will allow UK companies to continue trading, giving them breathing space that could help them avoid insolvency. This will include enabling companies to continue to buy essential supplies, such as energy, raw materials or broadband, while attempting a rescue.

The full text of the announcement can be found on the Gov UK Website. Whilst this is clearly a welcome move, further details are needed at this critical time for business. The announcement does not include other changes to insolvency law that may be necessary or helpful in the current crisis, such as limiting winding up petitions or amending the circumstances in which a company is deemed to be unable to pay its debts under the Insolvency Act 1986. There has been some suggestion that the level of petition debt will increase.

It is unclear whether companies that are already insolvent will be eligible for the new moratorium. The government’s proposals in August 2018 excluded companies that were already insolvent from the scope of the moratorium, opening it only to companies with enough cash to pay their debts for the proposed moratorium period as they fall due. Clearly, there will be a real focus on the scope of the moratorium and which companies in the current COVID-19 crisis qualify.

Virtual meetings

The Government has also announced that it will introduce legislation to permit Annual General Meetings to be postponed or held online or by phone, consistent with social distancing measures.

Other measures

This announcement follows a series of recent measures to combat the effects on business of COVID-19 including:

  • A three-month extension period for filing accounts, announced on 25 March 2020. Companies will still have to apply for the three-month extension to be granted and those citing issues around COVID-19 will be automatically and immediately granted an extension. More than 10,000 businesses have already successfully applied for the extension;
  • A new lending facility from the Bank of England to help support liquidity for large firms;
  • Loans of up to £5 million for small and medium enterprises through the British Business Bank;
  • The job retention scheme
  • 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; and
  • The HMRC Time To Pay Scheme.

More advice

Any business needing further advice can contact one of the insolvency team at Wilkin Chapman Business Solutions on 01302 320 600 or for legal advice, call Adam Marham at our Beverley office on 01482 398374 (email

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