Government ‘must extend company director protections to avoid more insolvencies’

The Government must reinstate protections for company directors to prevent a sharp rise in insolvencies following the new restrictions across the country, according to the Institute of Directors (IoD).

To protect companies from going bust due to the Covid-19 pandemic, the Government had suspended “wrongful trading” rules, where directors can face legal and financial liabilities if they don’t cease trading when their organisation faces insolvency.

However, despite new restrictions across much of the country, the protection ended on September 30 and has not been extended.

The IoD also warned that current business support measures did not account for the impact of restrictions across the supply chain, calling on Government to consider extending grant support through local authorities.

For example, if a brewer takes a hit to sales due to restrictions in a Tier 3 area, but is based in a Tier 1 location, no additional support is available due to the location of the supplier, rather than the businesses it serves.

Roger Barker, director of policy at the IoD, said: “It’s clear that the full impact of regional lockdowns isn’t accounted for by the Government’s current measures.

“There needs to be some form of supply chain support to address this. Whether this is done by extending the enhanced Jobs Support Scheme, or through discretionary local authority grants, the gap needs to be plugged soon. Business support should also be determined in as transparent a manner as possible.”

He also urged the Government to act on extending the suspension of the “wrongful trading” rules.

Mr Barker explained: “Failing to extend the suspension of wrongful trading rules was a mistake. Without this protection, the pressure is on directors to simply shut up shop when faced with difficulty.

“At the start of the crisis, the Government rightly sought to give directors breathing space to see their organisations and staff through lockdown.

“With significant restrictions returning across the country, it’s hard to see how this logic doesn’t still apply. For many businesses, there is still very little clarity around long-term viability.”