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The UK government has announced new insolvency measures to prevent businesses unable to meet debts due to the impact of coronavirus from being forced to file for bankruptcy.
Alok Sharma, the UK business secretary, said the wrongful trading law would be suspended to protect directors during the pandemic.
The move will allow directors of companies to pay staff and suppliers even if there are fears the company could become insolvent.
Speaking at the daily Downing Street press conference on Saturday he said the move would allow companies to “emerge intact the other side of the Covid-19 pandemic”
Changes include a temporary moratorium for businesses undergoing a restructuring process, during which time they cannot be put into administration by creditors and will continue to be able to access all raw materials.
“Our overriding objective is to help UK companies which need to undergo a financial rescue or restructuring process to keep trading,” he 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.”
He said legislation, which would retrospectively apply from the beginning of March, would be introduced at the “earliest opportunity”.
However he cautioned that “all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force”.
Retail groups, restaurants and airlines are among industries drastically cutting costs and halting tax payments to conserve cash and avoid bankruptcy in the coming months, as government measures to try to slow the spread of the virus in the UK has slashed consumer demand.
Wrongful trading was introduced into UK insolvency law in 1986 and makes it an offence for a company director to continue to trade if they know the business is unable to avoid going into liquidation.
Suren Thiru, head of economics at the British Chambers of Commerce, warned on Saturday that cash flow remained an urgent concern for many businesses, “so it’s vital that government support packages reach businesses and people on the ground as soon as possible”.
Jonathan Geldart, Director General of the Institute of Directors, added: “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.”
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