In April we looked at the relaxation of the wrongful trading provisions which applied from 1 March 2020.  This was one of the key measures the government brought in to ease concerns of directors who were concerned about the risk of personal liability whilst still trading during the ongoing global pandemic.

Following the Chancellor’s most recent announcements regarding additional measures to help businesses in the coming months, the provisions relating to the suspension of liability for wrongful trading have NOT been extended and ended on 30 September 2020. Whilst other measures made the headlines, like the new Job Support Scheme, the return of the wrongful trading provisions have gone under the radar but are equally as important to company directors, as they will again be at risk of personal liability for any wrongful trading claims for the worsening of the company or creditors’ financial position from 1 October 2020. Once a director of a company concludes that there is no reasonable prospect of the company avoiding an insolvent liquidation or an insolvent administration, the director has a duty to take every step, which a reasonably diligent person would take, to minimise potential loss to the company’s creditors.

If the court deems that a director failed in this duty, the court can order the director to make such personal contribution to the company’s assets as it thinks proper. There may be many thousands of directors who will feel themselves exposed to this liability from the beginning of October 2020, having benefitted from a suspension of the offence between 1 March and 30 September 2020.

Whilst other measures like the ability to evict your tenant (if you are a commercial landlord) have been further suspended until 31 December 2020, as has the ability to present a winding up petition for an unpaid debt, the risk is that directors do not seek advice if they know the business is in trouble and landlords/creditors are unable to take action at present. This could lead to personal liability claims against directors in the future.

It is therefore of key importance for directors to seek professional and qualified advice from an insolvency practitioner as soon as possible to safeguard your company’s future.

If you require any further information about this article please get in touch with Steven Wright in our Glasgow office.

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