Trading during coronavirus and the suspension of wrongful trading laws

Wrongful Trading Laws Suspended

Many business owners and directors will be concerned about the consequences of continuing to trade during coronavirus. However, the clear message from the government is that wherever possible business owners should continue and not rush to close the doors.

On 28 March 2020 the government announced a suspension to wrongful trading laws (often referred to as trading whilst insolvent) during coronavirus. This is a positive step and provides directors of limited companies with assurance that they can continue trading even if they have concerns over the long term viability of the business due to coronavirus. Exactly how the government will implement this suspension is not yet clear but we do not think well intentioned directors should have anything to worry about in any case. This is because wrongful trading only applies to businesses where the directors "know" or ought to "know" that their company cannot avoid going into liquidation. The key point here is that the government have clearly stated they will support companies and that no business should go to the wall because of coronavirus and therefore owners of otherwise healthy companies do not "know" their company will go into liquidation or administration and can presume the government support will be sufficient. Just as a caveat to this it is worth noting that no other director duty has been altered or suspended and directors should continue to act in good faith, in the best interests of the company and to the best of their ability - if a company was unviable and considering insolvency prior to coronavirus, the government support wont suddenly make that company viable and solvent and directors should take appropriate advice.

All businesses should be making strategy and forecasts to plan how their business can survive through coronavirus for the long term. In this regard, there are several government packages already available, including furloughed workers, grants, business interruption loans and deferment of tax payments. Many businesses are also agreeing payment holidays for rent, loans and mortgages.

It is going to be tough for many businesses but business owners should be taking steps to preserve their cashflow and regularly review any government schemes which can inject funds or assist with costs. The suspension of the wrongful trading laws should give business owners comfort that continuing the business in a responsible manner will not be subsequently criticised/prosecuted if the plans don't work out as expected.

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