The UK business secretary has taken action to help companies during the coronavirus outbreak.
Alok Sharma said he will make changes and temporarily suspend insolvency regulations for firms that are going through a restructure or a rescue.
The measures will allow such businesses to continue trading, in the hope that this will give them more breathing space and avoid becoming insolvent.
In addition, wrongful trading provisions for directors will be temporarily suspended for three months, retroactively from 1 March 2020.
Sharma said: “The government is doing everything in its power to save lives and protect livelihoods during these unprecedented times.
“Applying a common-sense approach to regulation will ensure products are safe and reach the market without any unnecessary delay, getting vital protective equipment such as face masks, like an n95 mask, to frontline staff as quickly as possible.
“[These] measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”
Trio of measures
Henry Shinners, partner and head of restructuring & recovery services at Smith & Williamson, told International Adviser that there are other two proposals that would work in tandem with the suspension of insolvency regulations.
“We have yet to formally see the detail of what is being proposed but we welcome the principles of the measures that have been announced, and believe they could work very well alone or in combination to help businesses survive this crisis.
“There are three main proposals as we understand it.
“The proposed temporary removal of the threat of personal liability for directors in respect of wrongful trading – or trading while insolvent as it is commonly known – will give boards of directors more time and confidence to work with advisers on restructuring and other solutions that might see businesses survive the covid-19 crisis where those solutions might not otherwise have been pursued because of that risk of personal liability for the director(s).
“We also understand that the government plans to introduce a moratorium; a period of breathing space for businesses that would allow protection from enforcement action by creditors, accompanied by measures designed to ensure the business is able to rely on continuity of supply and we do believe that, if the legislation introduced is effective, this would allow viable companies more breathing space to consider their options, with the process being monitored by a licensed insolvency practitioner.
“Finally, we understand that there will also be a new court-driven restructuring plan procedure, whereby a majority of creditors could agree to a restructuring plan, and that this new process would have the ability to bind dissenting creditors, which would make it a powerful tool for the restructuring of medium to large corporates in particular,” he added.
