Failure to extend emergency measures ‘risks wave of insolvencies’

Crucial measures to prevent viable firms from going under expire on Wednesday and threaten to lead to a wave of insolvencies, a business group has warned.

The Institute of Directors (IoD) accused the Government of making a “serious misstep” by failing to extend emergency legislation that was brought in on June 25 to protect hard-hit business bosses while they seek Covid-19 support.

The Government had brought in emergency legislation that prevent directors who applied for emergency coronavirus support loans from being charged with “wrongful trading”.

In usual circumstances, directors have a duty under the Insolvency Act 1986 to cease trading if their company is facing insolvency.

If they continue to trade while insolvent, such as by applying for loans, they can be charged with wrongful trading and if guilty, could be banned from being a director for up to 15 years and be personally liable for any outstanding debts owed by the company.

The threat of this liability was suspended by the Government to allow directors breathing space to get their company on a firm footing, but the protection runs out on September 30 and risks seeing swathes of viable firms hit the rocks, according to the IoD.

It blasted the Government for ignoring its plea for the protection to be extended to the end of the year, in line with other insolvency measures renewed in Chancellor Rishi Sunak’s Winter Economy Plan last week.

Roger Barker, director of policy at the IoD, said: “The failure to extend this measure sends a bad signal to directors across the country, and risks opening the door to a wave of avoidable insolvencies.

“Many directors, particularly in sectors like hospitality, tourism, and events, still have little clarity on the long-term viability of their companies due to the pandemic and public health measures.

“The suspension of these rules has given business leaders greater confidence to press on and seek a way through the uncertainty for their organisation and staff.

“Now, the message to businesses against the wall appears to simply be to shut up shop.”

A Government spokesman said: “Since the start of the pandemic we’ve taken swift action to save jobs and livelihoods. The suspension of wrongful trading since March has given company directors the confidence to continue trading while considering their options.

“Our support for business has reached, and continues to reach, millions of firms. As restrictions have changed, we’ve announced further support to help businesses which will protect jobs and help business manage their finances over the coming months.”