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22 May 2020

The Corporate Governance and Insolvency Bill - Updates

The Corporate Governance and Insolvency Bill - Updates

The Corporate Governance and Insolvency Bill can be read here https://services.parliament.uk/Bills/2019-21/corporateinsolvencyandgovernance.html

 A few key points:

• This measure would mean that, when the court is considering whether to declare a director liable to contribute to a company's assets under wrongful trading provisions and are considering the amount to be contributed, it will not take into account losses incurred during the period in which businesses were suffering from the impact of the pandemic. The deterrent to continuing to trade during that period will therefore be removed.

• The period in question commences from 1 March 2020 and ends on 30 June 2020 or one month after the provision comes into force, whichever is the later, so the measure is retrospective. However, in the event that the impact of the pandemic on businesses continues beyond the end of that period, it may be extended for up to six months using secondary legislation, and that process may be repeated, extending the suspension period further. If it is clear that the pandemic is no longer having an impact on businesses, the period of suspension may also be ended. Such extension and ending of the period will be through regulations contained in a statutory instrument (SI).

• The objective of this measure is to remove the deterrent of a possible future wrongful trading application so that directors of companies which are impacted by the pandemic may make decisions about the future of the company without the threat of becoming liable to personally contribute to the company's assets if it later goes into liquidation or administration. This will in turn help to prevent businesses, which would be viable but for the impact of the pandemic, from closing.

 

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