The government has introduced new protections to companies who cannot currently meet their liabilities to carry on trading.
However, these measures are only temporary and only designed to be used by companies which believe they will be able to settle their debts once the worst of the pandemic has passed.
Government protections
These lifelines include The Corporate Insolvency and Governance Act 2020 (CIGA) which received Royal Assent and came into force from 26 June 2020. Some, but not all its provisions have now been extended to the end of the year or as far as March 2021.
The Act shields businesses from creditor pressure and introduces a new ‘light touch’ formal insolvency process including a moratorium to protect directors and entrepreneurs, who will remain in control of a company supervised by a Licensed Insolvency Practitioner.
Once a moratorium is in place, enforcement action by all creditors, including landlords and secured creditors, is extremely limited and backed by a provision compelling continued supply of goods.
Funding redundancies
If an employer cannot afford to pay their employees’ redundancy pay, they can apply to the Redundancy Payments Service (RPS) (part of the government’s Insolvency Service) for financial assistance. If approved, the RPS will make statutory redundancy payments directly to the redundant employees on the employer’s behalf.
The payments take the form of a loan to the employer and repayment of that loan will form part of the plan submitted in application for the funding.
The next steps
If you cannot currently pay your debts, it is important that you make an honest assessment of your situation.
Take into account that these protections are only temporary, and while they keep your legacy liabilities on hold, you will also be accruing further liabilities through the day-to-day running of your business.
When these measures end, your creditors will be able to pursue the full amount owed to them and you should plan now for that situation.
The insolvency legislation empowers Insolvency Practitioners acting as Administrators or Liquidators of a company to take action to recover funds from directors where they can determine that they continued in business with no prospect of avoiding a company failure.
In those circumstances, the claim against the director personally is the value of the harm done to creditors by continuing to trade.
The CIGA temporary suspension of Wrongful Trading provisions has now ended with the implication that, by now, if directors continue to trade, they should have a clear plan, be confident that the business can survive, and that trade is not at the expense of creditors.
If you cannot pay
In the event that you will not be able to pay your debts, it is best to act soon while protections are still in place and while your business may still have some chance of recovery. Speaking to a restructuring and recovery expert early will give you the best opportunity to assess your options and put together a realistic and deliverable plan.
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