Well, what a year 2020 has been! The pandemic has brought such uncertainty and challenge to UK trade, it is predicted that GDP could fall by 11% in 2020. It has transformed the way that we work and live. In order to survive, many businesses have taken out loans and have deferred liabilities such as VAT. With England having just left a second lockdown, and the majority of the UK now either subject to regional tier 2 or tier 3 restrictions, businesses will be wondering whether there will ever be an end to the stresses of keeping their company afloat.
A number of vaccines have been developed, and with Pfizer first, to begin rollout this week, it brings great hope that by late Spring there will be a lifting of social distancing restrictions. This will give a boost to consumer-facing and travel sectors, especially hospitality and retail, which have borne the brunt of the job losses over recent months.
The Government and the Bank of England remain focused on supporting the UK economy. A prime example of this is the extension of the furlough scheme until March 2021. There are further grants available but the biggest help at this time is the all-time low cost of borrowing money. This gives scope to temporarily borrow to provide essential working capital and acts as a buffer in the uncertain times. The good news is that there does not appear to be any prospect of any rate rises before late 2022 at the earliest.
Further positive news is that the Government has reintroduced the temporary suspension of wrongful trading measures from 26th November 2020 until 30th April 2021.
Across all sectors, companies face many issues such as significant VAT and rent arrears, difficulty of accurate financial forecasting, concerns with regards to potential breaches of financial covenants, not to mention the increasing challenges in obtaining additional funding. Against these obstacles, directors can be excused for not wanting to take the risk of continuing to trade.
This suspension will temporarily remove the threat of personal liability arising from wrongful trading for directors. Liquidators and Administrators will not be able to make a claim against an insolvent company’s directors for any losses to the company or its creditors resulting from continued trading while the wrongful trading rules are suspended.
Directors are still bound by their fiduciary duties, and also by the fraudulent trading provisions of section 213 of the Insolvency Act 1986. In addition, directors also have duties under the Companies Act 2006 and must continue to act and be mindful of the interests of creditors if the likelihood of insolvency increases.
We would recommend that you take the following actions:
The pandemic is not over, but there are signs that 2021 will hopefully be an improvement in 2020. Planning ahead and seeking advice early will ensure that you are best placed to meet 2021 in a positive way. Please get in touch with our team, who will be able to guide you in the right direction.