The Government, during their weekend briefing on 28 March 2020, confirmed they would be relaxing the rules on wrongful trading for directors and making other changes to insolvency law to enable companies to continue trading in the current climate.

Whilst the detail is scant, we do know that the Government plans to allow directors to continue trading and to incur new credit (including through their Coronavirus Business Interruption Loan Scheme, please see our article here for further details) where, in normal circumstances, such actions would mean that directors could be held personally liable for any losses suffered by creditors caused by those directors’ actions.  This relaxation of s214 Insolvency Act 2016 will apply retrospectively to 1 March 2020 and will last for three months.

In addition, the Government announced that changes to insolvency legislation previously floated in August 2018 will be brought into law “at the earliest opportunity”.  This new legislation will add a moratorium for companies to give them an opportunity to revive or restructure their business without the worry of creditors enforcing their debts. This has echoes of the US Chapter 11 process whereby the company can continue to trade and supply chains are protected and compensated throughout. 

The steps taken by the Government have been broadly welcomed. The British Chambers of Commerce have appreciated the support stating that it was important that companies which were financially viable before this crisis should be supported through it so that they will continue to exist on the other side. However R3 have warned that a blanket suspension of wrongful trading rules could be open to abuse. It should be noted that other Insolvency Act provisions such as fraudulent trading, misfeasance and transactions defrauding creditors remain in place.

The new moratorium rules and the potential for restructuring through a time of insolvency or near insolvency are expected in the coming weeks; but the Government clearly hopes that these changes, along with the new lines of credit and the deferral of VAT payments, and the extensive measures relating to employees and landlord and tenant arrangements, will be sufficient to give as many UK based businesses as possible a fighting chance of survival.

Should you have any queries, or would like advice on the changes to insolvency law, please contact Corporate and Commercial Solicitor Nicola Rout by telephone on 01206 217031 or by email at