Navigating the new Director duties UK guidelines during Covid-19

COVID-19 Advice

Jason Elliott, our Head of Business Recovery, examines the announcement of the Government’s recent Wrongful Trading and Temporary Insolvency Practice Direction, including offering a range of advice and exploring the potential warnings that could apply to many business directors.

Table of Contents

• Announcement of the guidelines
• Implications of the guidelines
• Practicalities of TIPD
• Support for Directors

Announcement of the guidelines

In the past fortnight, the current Secretary of State for Business, Alok Sharma shared details of a range of temporary measures that will change the nature of the current insolvency regime in the UK, with the aim of supporting company directors in these challenging times.

Crucially, he made specific mention of the implementation of a moratorium on Wrongful Trading claims that are able to be made against directors for a three-month period from March 1st, 2020. Mr Sharma also made reference that directors should be aware that “checks and balances” are still in place in the event of any formal insolvency proceedings which occur.

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Implications of the guidelines

This was a subtle way of ensuring directors are aware that statutory and fiduciary duties are still in place, with any breach still able to be challenged by designated professionals, although this will take place under alternative powers (i.e. Preferences and Misfeasance).

Additionally, Sharma made a more general reference to upcoming changes to the UK’s insolvency regime at the present time, which we are patiently awaiting more specific detail on. It is worth noting that ‘The Temporary Insolvency Practice Direction 2020’ (TIPD) was enacted on April 6th, 2020.

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Practicalities of TIPD

In practice, TIPD is predominantly a guide to assist Insolvency Practitioners on how to best navigate within the current restrictions, with a large part of the focus on our ability to be able to file forms online and receive access to solicitors and courts while lockdown measures are in place. There is still hope, however, with new legislation currently proposed in order to deal with cash-flow issues that have hit otherwise-healthy companies due to the impact of COVID-19.

It is important to understand that this new legislation is intended to assist directors of historically healthy businesses, those who have undergone financial stress directly due to the COVID-19 crisis. It is important that they understand this and are aware of the problems that company directors could encounter if they continue to trade a business that was already insolvent, or in likely need of an insolvency process.

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Support for Directors

These measures were not a “charter” to enable insolvent businesses to carry on regardless. We can fully understand the temptation for company directors to delay handing their business over to an Insolvency Practitioner and to seek to apply for the new financial support being offered.

However, if you look to take action such as deferring HMRC for three months and/or utilising the government’s staff furlough provisions, you will be required to take significant steps to justify your actions if you were already insolvent at the time of the crisis. Should it be determined that you were not entitled to utilise these measures, as your company had little to no chance of long-term survival, it may be that the aforementioned “checks and balances” will be imposed on you.

If you are currently unsure of your duties as a company director during the present crisis, it is advisable to take advice from a financial expert. To speak to one of our team today, call us on 0300 303 8284 or fill out the contact form on this page.

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