Further Suspension of UK Wrongful Trading Laws Introduced
On 26 November 2020, The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 (the “Regulations”) came into force.
The Regulations have exactly the same impact as the suspension of liability for wrongful trading that was brought into force by the Corporate Insolvency and Governance Act 2020 (the “Act”) on 26 June 2020. We discussed these measures in detail in our blog here before they were brought into force by the Act and there was a subsequent extension of the “relevant period” to 30 September 2020.
Unlike other temporary measures under the Act which were extended again to 31st December 2020 (such as the measures relating to the use of statutory demands and winding up petitions) the original suspension of liability for wrongful trading introduced by the Act came to an end on 30 September 2020. It was unclear why the measures relating to wrongful trading were not similarly extended to 31st December but many commentators believed it was because they “lacked teeth” given the many other similar duties to which directors were already subject which were not suspended. However, the new Regulations suggest that the failure to extend the wrongful trading measures again, may in fact have been an oversight.
Curiously, the new suspension introduced by the Regulations is only effective from 26 November 2020 until 30 April 2021. Without the Regulations having retrospective effect, there appears to be a gap of almost two months where wrongful trading liability for directors was not suspended. As a result, it would appear that decisions and actions taken by directors during this interim period between 30 September and 26 November would be subject to the ordinary wrongful trading provisions under sections 214 and 246ZB of the Insolvency Act 1986.
Co-authored by Rory Thomas