Wrongful Trading provisions have effectively been off the table since the start of the Pandemic. On 1 March 2020, the Government suspended the Wrongful Trading rules. The suspension is due to come to an end on 30 June 2021. So, what does this mean for Directors and their companies?
Wrongful Trading is set out in Section 214 of the Insolvency Act 1986. In simple terms, it refers to companies that continue to carry on their daily business whilst trading insolvent; being unable to pay their debts as and when they fall due and with no reasonable prospect that the company can avoid insolvent liquidation or administration.
Up to now, the Government measures on Wrongful Trading have seemed to imply that Directors should try to keep going where they can – to ‘give it a go’. In my view, this was a correct call (within reason), as no one really knew how long the pandemic and restrictions on trading would last. A certain amount of empathy had to be given to those trying to continue their businesses.
But, as we approach 1 July 2021, companies now need to ensure that they can start paying their current and historic debts on agreed terms. Should the company ultimately fail, Directors could find themselves facing personal fines, penalties and/or being personally liable for company debts under the provisions.
Speaking recently to many struggling business owners, the key as with most things is to plan. I find too often that business owners do not have a cash-flow forecast in place. This is a must if you want to see which direction your businesses are going. Monitor your forecast and review it on a weekly basis. Is the curve going up or down? Where are the stress points? Planning and forecasting in this way will also help mitigate any personal liability on Directors if a company ultimately fails.
As always, we, as Licensed Insolvency practitioners, are here to listen and guide Directors through what is likely to become a very difficult time for many. Early advice is always key. To discuss, or learn more, please contact a member of the Business Recovery & Insolvency team.
By Jon Mitchell, Partner and Head of Business Recovery & InsolvencyShould you be worried about Wrongful Trading?