Wrongful Trading is Back!

Wrongful Trading is back! The suspension of Wrongful Trading ended on 30 September 2020. The suspension that took effect from March this year is now no longer in force.

The suspension meant that any Wrongful Trading which may have been undertaken from 1 March 2020 until 30 September 2020, would not be claimable by a liquidator if a company subsequently went into liquidation.

This provision was unusual in that a director can still be pursued for Wrongful Trading in any event if the conditions apply. Simply the losses that might give rise to a personal liability cannot (it is assumed) have been incurred during the period of the suspension. The suspension was brought into effect in Section 12 of the Corporate Insolvency and Governance Act 2020.

Did Wrongful Trading Ever Really Go Anywhere?

No! What the suspension of Wrongful Trading meant was that a Company Director ought not to be assumed liable for losses arising during the period 1 March 2020 to 30 September 2020. However, what this does not appear to mean is that a Director would be able to avoid the risk of being liable for losses arising, either prior to 1 March 2020 or now after 1 October 2020, if there had been (or will be) Wrongful Trading where a company has entered or now enters insolvent liquidation.

The confusing feature of the legislation is that it is not a full suspension but in fact, it is confined to the calculation of losses and who (if anyone) might be held responsible for the same.

The legislation uses the word “assume”, so perhaps there might still be some scope for rebutting that presumption if the evidence seems particularly egregious and the court might have some residual discretion in any event. However, a notable point is that Directors’ duties always remained notwithstanding the suspension and therefore a Director perhaps ought not rely upon the suspension with too much alacrity as a ‘get out of jail free card’ where Wrongful Trading liabilities might be concerned.

As with any insolvency issue obtaining professional advice at the earliest stage is crucial and can be the difference between rescuing a business and its closure, as well as safeguarding against the wider impact of Director liability.

So if any doubt Act Now! 

This post “Wrongful Trading is Back!” is not legal advice and not to be relied upon as such. No liability is accepted for any reliance placed upon it. It is provided for information purposes only. You should take independent professional advice based on the facts of your case.