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A Sting in the Tail for Directors – The Return of Wrongful Trading

A Sting in the Tail for Directors – The Return of Wrongful Trading

The Chancellor of the Exchequer came to the House of Commons yesterday to announce significant changes to the support offered to business and jobs following the anticipated end of the furlough scheme in October.

He made a point of telling the House of Commons that he was aiming government assistance at viable businesses.

What went slightly unnoticed, but no less meaningful, was that the Corporate Governance and Insolvency Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 were also released yesterday and these regulations extended the period for some of the earlier protections put in place for distressed companies.

  1. Statutory demands and winding up petitions continue to be restricted, subject to some exceptions until 30th December 2020.
  2. Termination clauses in contracts for the supply of goods and services remain unenforceable but the small suppliers’ exemption remains in place until 30 March 2021.
  3. There were minor changes to the new moratorium procedures including the extension of relaxed entry requirements until 30 March 2021.
  4.  Companies continue to enjoy flexibility to hold AGMs and can continue to hold these meetings virtually until December 2020.

What was initially surprising about the extension regulations is that they didn’t extend the protection period against wrongful trading allegations against directors.

By not extending the protection directors currently have against wrongful trading provisions, he was sending a sharp reminder that viability should now be back at the forefront of directors’ minds.  There might be a further short period of protection for viable companies, but this is a warning signal to directors to assess their actions in line with this duty.  Any director who accepts any of the new support measures must do so with an eye to whether or not the rescue measures will allow the company to avoid insolvent liquidation.

The extensions were not wholly unexpected as the government has a marked reluctance to allow a significant increase of insolvencies at this time.  What they have done at the moment however is push the protection bubble and extension period out for only three months and not six and there will be, on 1st January 2021, both the end of the Brexit transition period and the removal of insolvency protection for businesses to deal with. 

It is a pretty clear signal from the Exchequer that they are not willing to continue to support zombie companies to the detriment of creditors who are unable to pursue sums due to them and who are no longer expected to shoulder the burden of debtor businesses preserving cash. 

What this short extension, without extending wrongful trading protections, has done is send a signal to directors that they should use this period wisely to deal with appropriate restructuring and refinancing.

This short period does however give enough time to allow directors to take advice to protect themselves and hopefully, their businesses prior to Brexit and prior to the end of the extension period.

Insight from Pamela Muir, Insolvency, Restructuring and Corporate Partner at Thorntons. For more information contact Pamela on 03330 430350 or email

About the author

Pamela Muir
Pamela Muir

Pamela Muir


Corporate & Commercial

For more information, contact Pamela Muir or any member of the Corporate & Commercial team on +44 141 483 9029.