Coronavirus insolvency rules extension gives businesses “breathing space”

14th Apr

The extension of temporary measures to protect businesses and their directors during the coronavirus pandemic has been welcomed by corporate lawyer Sam Pedley.

Mr Pedley, a partner at Worcestershire law firm mfg Solicitors, said businesses had been given vital “breathing space” with the extension of two insolvency measures until 30 June 2021.

Measures brought in last summer as part of the UK Corporate Insolvency and Governance Act 2020 provided temporary protections during the coronavirus pandemic.

A suspension of personal liability for “wrongful trading” has protected directors from being prosecuted if they fail to act in the best interests of their company’s creditors, once the business becomes insolvent. That was meant to have ended on 30 April 2021 but has now been extended.

The other measure prohibits creditors filing winding-up petitions on the basis of statutory demands or where COVID-19 has had a financial effect on a company. That measure was meant to have expired at the end of March 2021 but has also been extended.

Mr Pedley, from the Commercial Litigation Department at mfg, said: “The extension of these temporary provisions provides ongoing breathing space to companies whilst coronavirus-related restrictions remain in place, ensuring that an immediate cliff edge is avoided.

“Both measures go hand-in-hand when it comes to protecting commercial tenants who might otherwise have been confronted with a raft of statutory demands this spring.

“The extension until 30 June covers businesses until the planned end of legal limits on social contact, currently set at 21 June 2021. Whether this is the final extension remains to be seen, but for now this is a much needed lifeline for businesses who find their ability to trade severely hampered by things that are completely beyond their control.”

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