Coronavirus Update: government announces changes to insolvency rules

Author: Douglas-Jones Mercer.

Date: March 30th 2020

The Government’s Business Secretary, Alok Sharma, held the daily briefing on Saturday and confirmed that the first tranche of funding arrived with English councils on Friday so that they can begin providing direct support to 1 million businesses. Mr Sharma reassured businesses that the Government are getting money for the existing schemes out to businesses as soon as possible.

It was announced that insolvency rules are to be relaxed during the coronavirus pandemic to allow firms “greater flexibility as they face the current crisis”. Mr Sharma said this will “improve insolvency legislation” to extend the legal options available to companies coming into financial difficulties during the pandemic. The changes will allow them to undergo a financial rescue or restructure, giving businesses “extra time and space” to recover whilst ensuring “creditors get the best possible return in the circumstances”.


Pippa Fowles/Crown Copyright/10 Downing Street/PA Wire Copyright: PA (Press Association)

Further changes to insolvency legislation include a suspension of wrongful trading provisions during the pandemic, to remove the danger of directors becoming personally liable for measures they need to take to ensure the survival of their business throughout the pandemic. This will have retrospective effect from 1st March. Mr Sharma did confirm that all other checks and balances to ensure directors carry out their duties will remain in force to prevent directors taking advantage of the suspension. In brief, the obligations which directors would have had to comply with are usually:

• Seek advice from an insolvency practitioner as soon as possible;
• Cease trading if the company cannot pay its debts as they fall due;
• In order to be guilty of wrongful trading, the directors must have taken “every step with a view to minimising the potential loss to the company’s creditors”.

The changes reflect the Government’s intentions to ensure employees are being paid even if a business is not currently trading.

Additionally, companies which need to hold AGMs will be able to do so flexibly, in a manner compatible with current advice e.g. postponing, holding them online or over the phone.

Mr Sharma also confirmed that businesses will be granted a 3-month extension for filing of accounts at Companies House using an online portal, and extensions may well be extended to other filing obligations.

A further announcement for key workers confirmed that if they are unable to take their entire annual leave entitlement due to the coronavirus outbreak, they can carry over any untaken leave to next two years. This ensures key workers do not miss out on their annual leave entitlements while allowing employers flexibility as to how and when that leave is taken.

It is also becoming clearer who will benefit from the Self-Employed Income Support Scheme. The scheme is open to individuals and trading partnerships, meaning those who own limited companies will not be able to benefit. While they could recover 80% of their salary under the Coronavirus Job Retention Scheme, those who operate through limited companies usually pay themselves a nominal salary and take the majority of their income through dividends. In order to benefit under the Job Retention Scheme, the individual would need to furlough themselves which of course limits their earning potential (and differs substantially from the position for self-employed who can benefit from the scheme and continue to work).

Company directors should note that if they are furloughed, they cannot do any work for the business, however their duties as a director will remain in place and need to be complied with. There will in the majority of cases be some ‘day-to-day’ management required (book-keeping, paying outgoings, etc.) meaning it not practical for directors to be furloughed.

This note was written by Georgia Power, a solicitor in DJM’s Corporate and Commercial department. If you need any assistance you can contact Georgia on or on 01792 656518.

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