By regulations laid in Parliament on 11 February 2021, the Government is asking for power for another year (to April 2022) to make temporary amendments or modify the impact of corporate insolvency legislation. According to the explanatory memorandum, the regulations will provide a means for specific and temporary changes to be made to corporate insolvency and governance legislation should the urgent need arise to do so, which will allow quick reactions to any unforeseen challenges arising as a result of the pandemic’s impact on business. Current relaxations and modifications last until 30 April 2021 and it is yet to be seen what (if any) specific and temporary changes the Government might seek to make, whether ahead of that deadline or after it has expired.
There is a restriction on the grounds for compulsory winding-up and a suspension of the wrongful trading provisions. Alongside that, if they apply, are the furlough scheme, loans and grants and business rates relief. But if directors think that their company will not survive the end of that support, should they wait or should they act sooner?
Directors who know or should know that their company is insolvent or that it is probable that their company will become insolvent owe a duty to creditors to put their interests first. That doesn’t necessarily mean an immediate move into a formal insolvency regime. So, if it’s appropriate to consider them, what options might there be to rescue a company before formal insolvency becomes unavoidable?
Early approaches include considering restructuring borrowing, seeking stakeholder investment moving into partnerships with trading counterparties. HMRC might consider a time to pay arrangement ‘ but beware the implication of commercial insolvency arising from the inability to pay Crown debts when due.
Alongside, they should explore the governmental support options available from the Government.
At the same time, they should consider making use of the moratorium process which buys an initial 20 days’ protection. Then, there is the possibility of a scheme of arrangement which can provide a way of reaching a compromise with all ‘ even dissenting ‘ creditors. And there is the potential option of a company voluntary arrangement.
However, if insolvency is inevitable then the directors should move the company to a formal process (probably administration or liquidation) as soon as possible.
And at all times, directors will benefit from obtaining expert advice, giving the advisors a full and frank instructions and making a record of those instructions, the advice given and the action taken.
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