By Laura Green, Leonard Curtis Legal
The government announced yesterday that it was going to re-instate the suspension on wrongful trading that was in place earlier this year between 1 March and 30 September.
Under section 214 Insolvency Act 1986 a director of a company may be liable for wrongful trading and be personally liable to contribute to the company’s assets if it appears to a court that they have continued to trade when they have concluded (or should have concluded) that there is no reasonable prospect of the company avoiding insolvency.
This liability was suspended earlier this year under the provisions within section 12 of the Corporate Insolvency and Governance act 2020 (CIGA 2020).
In new regulations laid before parliament yesterday (25 November) the suspension has been re-introduced for the period from 26 November 2020 to 30 April 2020. The provisions of section 12 CIGA 2020, and the terms of the suspension, remain the same as they were earlier in the year.
The regulations, and the periods to which they apply, are likely to cause issues for courts and insolvency practitioners in considering the liability of directors. Generally speaking, in determining whether wrongful trading has occurred, the cumulative effect of a director’s actions (or inaction) over a period of time are taken into account. We are now faced with the situation where potential liability for wrongful trading during the pandemic will have been suspended for an initial 7 month period, then reinstated for approximately 2 months, then suspended again for a further period of approximately 5 months. Establishing evidence to either prove or disprove liability will be a difficult exercise.
Please contact one of the team at Leonard Curtis Legal for advice and support on this and other legal issues.
Back to updates