Business Recovery Factsheet - Flipbook - Page 4
Where a company goes into a formal insolvent liquidation or administration, the insolvency practitioner can
require a personal contribution towards the debts of the company from relevant directors. This applies if at
some point before the commencement of winding up or administration, that person knew or ought to have
concluded that there was no reasonable prospect that the company would avoid going into insolvent
liquidation or insolvent administration, but, nevertheless, continued to trade to the detriment of creditors.
They must also have failed to take every step they ought to have taken with a view to minimising the loss
to the company’s creditors.
The Government recognises that the sudden and significant impact of COVID-19 has placed pressure on
directors. Accordingly, it plans to temporarily suspend the wrongful trading provisions with retrospective
effect from 1 March 2020 to allow company directors to keep trading during the current emergency without
the threat of personal liability if the company ultimately fails. This has been broadly welcomed by directors
facing the current exceptional challenges.
The existing laws relating to directors’ duties and directors’ disqualification continue as a deterrent against
director misconduct. Likewise, laws on fraudulent trading – where the director knowingly carries on
business with intent to defraud creditors or others for a purpose – are not being relaxed, so will provide
redress for extreme situations.