Directors may still be at risk

The Details

Wrongful Trading is an offence that occurs when a company is placed into a formal insolvency process (but not a Company Voluntary Arrangement) and the appointed practitioner considers that the director “knew or ought to have concluded” that the company was insolvent earlier than when the actual insolvency event occurred. The nature of a claim is usually that had the director acted at the correct time then the overall loss to creditors would have been less than was reported at the point of formal insolvency.
 
A successful claim against a director under the Wrongful Trading provisions can result in personal liability (for the difference in the actual financial position between those two dates).The step by Mr Sharma is significant in affording directors every opportunity to save their business even if at this time the financial outlook appears bleak.
 
What is worrying however is that he also referred to “checks and balances” and reminded directors of their duties to still act properly thereby indicating that the other powers of a practitioner remain.  Directors must therefore still be mindful of committing other insolvency offences such as preference payments in the event that the business fails in the coming months.
 

It will be interesting to see whether these issues are specifically addressed within the changes when they are formally disclosed.  The relaxation of Wrongful Trading does afford some comfort.
 
However, directors should not be completely at ease if there is real concern about the company’s financial position, especially when evident pre COVID-19.   
 
If any clients have concerns we can discuss and if approprate put them in touch with a specialist in this field