Government extends temporary suspension of insolvency measures - Kuits Solicitors Manchester
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Government extends temporary suspension of insolvency measures

Government extends temporary suspension of insolvency measures

4th January 2021 - Published by Kuits Restructuring & Insolvency team

The Government announced on 9th December an extension to the temporary suspension of the use of statutory demands and winding-up petitions until 31st March 2021. At first sight the Government’s announcement implies that winding-up petitions are suspended. However, this is not the case. Petitions can proceed in limited circumstances such as where the pandemic has not had an effect on the debtor, or where the circumstances allowing a petition to be presented would have arisen anyway.

Directors’ basic duties

In addition, the Government re-instated the temporary removal of the threat of personal liability for wrongful trading from directors until 30th April 2021. However, this suspension does not affect directors’ duties on how a director must act where the company is or might be insolvent. Directors’ basic duties as codified in the Companies Act 2006, supplemented by a wide body of case law:

  • Section 171: to act within powers
  • Section 172: to promote the success of the company
  • Section 173: to exercise independent judgment
  • Section 174: to exercise reasonable care, skill and diligence
  • Section 175: to avoid conflicts of interest
  • Section 176: not to accept benefits from third parties
  • Section 177: to declare interest in proposed transactions or arrangements

We would emphasise that if companies enter administration or liquidation, the insolvency practitioners appointed have a duty to investigate the conduct of the directors and may have the ability to pursue directors for entering various transactions and/or for misfeasance generally. Where directors are concerned, we would recommend that you seek advice.  We are currently advising a number of companies and directors on their positions, and their directors’ responsibilities.

Termination clauses

Finally, termination clauses entitling a party to terminate a contract upon the insolvency of another, are prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until 30 March 2021 so that they can take steps to protect their business if necessary.

Get in touch with a Restructuring and Insolvency solicitor in Manchester

If you would like any advice on any of these issues, please contact Head of Restructuring & Insolvency, Richard Palmer on 0161 503 2996 or at richardpalmer@kuits.com.

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