In response to the Covid-19 crisis, the UK government introduced a raft of measures in the Corporate Insolvency and Governance Act 2020 (CIGA). Among these was the so-called ‘suspension of wrongful trading’. The idea was to encourage directors to trade on in these uncertain times by temporarily reducing the scope for personal responsibility. CIGA provisions essentially provided that directors were not to be considered responsible for the worsening of their company’s financial position from 1 March to 30 September 2020. Other temporary measures introduced by CIGA were extended but this suspension period was allowed to lapse.
Yet, it appears that the government has since had second thoughts: a further suspension period has been introduced to run from 26 November to 30 April 2021. Naturally, this is to be welcomed at a time when so many UK businesses continue to face significant pressure.
However, given that the first period was set retrospectively, it is unclear why this second period was not back-dated to run seamlessly from the first. The resulting gap will increase complexity when assessing director conduct as it will now need to be considered across two disjointed periods. In any case, there does not appear to be any reason why directors should face scrutiny over the 56-day window that arises.
In spite of the suspension, directors must continue to consider creditor interests in accordance with their statutory and common law duties. Our note below gives greater commentary on wrongful trading and other risks faced by directors of distressed companies.
All directors owe duties to their companies. However, once a director knows or should know the company is (or is likely to become) insolvent, creditors' interests become paramount. In practical terms, this means that the nature of directors’ duties undergoes a significant shift when insolvency threatens.