News COVID-19 Insolvency law relief: What’s in the Bill, and how to use it - an article by Bell Gully

08 May 2020

The government has released the details of its proposed insolvency law relief package.

The government has released the details of its proposed insolvency law relief package. The proposed changes will be welcomed by directors, many of whom are facing difficult choices about whether and how to continue to trade through the COVID-19 crisis.

The package forms part of the COVID-19 Response (Further Management Measures) Legislation Bill that was introduced yesterday afternoon. The Bill is expected to be progressed quickly, with Parliament's Epidemic Response Committee expected to report on the Bill by next Tuesday, 12 May 2020.

The Bill is broad in scope and amends or modifies some 45 different pieces of legislation. In this update we focus on two of the proposed changes to the Companies Act 1993: relief from directors' duties and a new business debt hibernation scheme. We then outline when and how directors might make use of them.

Directors' duties relief

The Bill proposes significant, but temporary amendments to the two directors' duties that apply specifically to insolvency scenarios:

  • the duty not to trade recklessly, and

  • the duty not to allow the company to incur obligations without a reasonable belief that they will be met when due.

Together, these duties protect the interests of the company's existing creditors. They also protect the interests of new creditors that may arise from ongoing trading. Effectively, the duties prohibit directors from taking unreasonable business risks at the expense of creditors who will not be paid.

Read the full article here


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