You could hear the heart-warming applause ring out from several streets away. Just like last week, it struck me that the Coronavirus pandemic is having a seismic effect on all of our lives, and bringing about change at breakneck speed. Government interventions covering things that previously would have been considered unthinkable have been coming thick and fast, and although there's arguably room for improvement, it's clear that one of their goals is to preserve jobs and the economy as far as possible.
With that in mind, last week the UK Government announced plans to amend insolvency law to "give companies breathing space and keep trading while they explore options for rescue." The changes announced (so far) cover (1) wrongful trading rules and (2) a new moratorium.
In the normal scheme of things, if the directors of a company continue to trade that company when they know or should know that insolvency is the likely outcome for their business, then the directors may be held personally liable for any shortfall in the eventual insolvency of that company. The rationale for that is that creditors will face further loss if the company continues to trade when there is likely to be no realistic prospect of avoiding insolvency. Faced with that threat, most sensible directors would cease trading and take steps to have the company put into administration or liquidation.
As a result of the coronavirus, swathes of previously solid businesses will likely feel that the writing is on the wall. A few weeks ago, the sensible advice to them would be to speak to an insolvency professional. However, the UK Government's announcement means that there will be a temporary suspension of the wrongful trading laws. What's more is that it's to be backdated to 1 March. The hope is that directors, acting reasonably and in good faith, try to keep their companies going until we get to the other side of this pandemic
Of course, for those rogue directors hoping to take advantage of the situation - forget it. The rules around fraudulent trading, misfeasance and director's disqualification are not being relaxed nor are the rules around directors' duties laid out under the Companies Acts.
The UK Government also announced a new moratorium for companies who "need to undergo financial rescue or restructuring".
The detail on this new moratorium is fairly scant at present but it's thought that it will be relatively similar to the moratoria which can apply when a company proposes a CVA or is in administration. That means that, for as long as the new moratorium lasts, it's likely that creditors (both secured and unsecured) won't be able to take enforcement measures to recover debt owed to them by that company nor proceed with court action. What's less certain is whether creditors will be able to apply to court for permission to proceed against a company where a moratorium is in place (as they can in the context of the administration moratorium), but if the intention is for the moratorium to facilitate a rescue or restructuring then it's perhaps unlikely that this will be possible.
Interestingly, it doesn't look like the rescue or restructuring has to be related to negative impact caused by coronavirus, so companies which were in distress prior to its outbreak will also be able to benefit from this moratorium.
The Government has signalled that it intends to bring these changes in as soon as possible. In practice, the UK Parliament is in recess until 21 April but it's likely that these changes will make their way on to the statute book not terribly long after that.