Don't call it a comeback: Extension of temporary wrongful trading measures

Back in September, we wrote about the extension of some of the temporary COVID related provisions in the Corporate Insolvency and Governance Act 2020 (first enacted on 26 June 2020). The 2020 Act introduced important temporary support measures that would help relieve some of the pressures arising from the pandemic. As our previous article explains, these temporary provisions were due to expire on 30 September 2020; however, just over a week before they were due to expire, the Government confirmed some of the measures would be extended for either three or six months. Notably, the provisions relating to wrongful trading were not extended and so came to an end on 30 September.

Though initially allowed to lapse for a brief period, the temporary changes to the wrongful trading regime have now been reinstated by the Government. Under the, snappily named, Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020, the wrongful trading temporary measures recommenced on 26 November 2020 and are now due to end on 30 April 2021.

Directors can be liable for wrongful trading if they continue to trade where there is no reasonable prospect of the business avoiding a formal insolvency. These temporary provisions are designed to give some comfort to directors who continue to trade in the current difficult economic climate caused by the pandemic. The reinstatement regulations confirm that between 26 November 2020 – 30 April 2021 (as well as 1 March - 30 September 2020), directors of most companies will not be held liable for wrongful trading in respect of a company’s deteriorating financial position. This does bring about the rather unusual position whereby wrongful trading provisions were “live” from the start of October to 25 November and it remains to be seen whether directors will be found liable for their actions during this brief period.

How can we help?

If you have any queries in relation to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020, please contact Leon Breakey or another member of our Commercial Dispute Resolution team.

This article was co-written by Anita Dhesi, Trainee Solicitor.

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