Wrongful trading
Wrongful trading provisions in the Insolvency Act 1986 allow liquidators and administrators, who are office-holders in insolvency procedures, to apply to the court for a declaration that directors of the company in liquidation or administration are liable to personally contribute to the assets of the company. Provision in in the Insolvency (Northern Ireland) Order 1989 enables similar applications to be made in the case of liquidations. The declaration can be made where the directors allowed the company to continue trading beyond the point at which the insolvency procedure was inevitable, and did not take every step to minimise potential losses to creditors.
	The threat of a possible future liquidator or administrator making a wrongful trading application is a strong deterrent to directors causing a company to continue to trade where there is a threat of insolvency, even if they intend to take steps to minimise losses to creditors.
	The current crisis caused by the COVID-19 pandemic means that there is a great deal of uncertainty around trading conditions, in both the immediate and longer term future. Directors are having to make decisions about the future viability of their companies and whether it is appropriate for trading to continue.
	This measure would mean that, when the court is considering whether to declare a director liable to contribute to a company’s assets under wrongful trading provisions and is considering the amount to be contributed, it will not take into account losses incurred during the period in which businesses were suffering from the impact of the pandemic. The deterrent to continuing to trade during that period will therefore be removed. Certain financial services firms and public-private partnership project companies are excluded from the suspension.
	The period in question commences from 1 March 2020 and ends on 30 September 2020. However, in the event that the impact of the pandemic on businesses continues beyond the end of that period, it may be extended for up to six months using secondary legislation, and that process may be repeated, extending the suspension period further. If it is clear that the pandemic is no longer having an impact on businesses, the period of suspension may also be ended. Such extension and ending of the period will be through regulations contained in a statutory instrument (SI).
	The objective of this measure is to remove the deterrent of a possible future wrongful trading application so that directors of companies which are impacted by the pandemic may make decisions about the future of the company without the threat of becoming liable to personally contribute to the company’s assets if it later goes into liquidation or administration. This will in turn help to prevent businesses, which would be viable but for the impact of the pandemic, from closing.