Warning to business leaders as insolvent trading laws resume
An insolvency expert has fired a warning to company directors as wrongful trading laws came back into force following a Covid-19 hiatus.
David Ellis, head of insolvency and business recovery at Brierley Hill law firm Higgs, urged directors to conduct a thorough review into whether or not their business is still viable.
His plea came as wrongful trading laws resumed, which expose directors to personal liability if they should have realised that insolvent liquidation was inevitable but failed to take actions to protect their creditors.
The Government suspended the laws during the initial stages of the pandemic when it was impossible in most industries to make any meaningful predictions regarding solvency for business.
Mr Ellis said: “Now the provisions have returned, directors must give careful thought to whether their companies have a viable future. Many will be faced by arrears of tax and rent that has accrued over the last year as well as debt taken out in the form of business recovery loans, so their solvency position will be considerably worse than it was at the start of 2020.
“It is important that directors carry out a detailed review on the extent to which they can carry on in business. Even if their creditors do not force their hands, many directors will be concluding that long term viability of the company cannot be guaranteed.
“Insolvency practitioners are predicting a significant increase in voluntary liquidations from the businesses of those directors who are properly advised. Directors who fail to carry out this assessment, however, may still find that the business fails subsequently.
“If it does, then they will be forced to justify their decision to carry on trading after July 1 and should be aware that they may be facing personal liability for any increase in sums owing to the creditors arising from that date.”
Mr Ellis stressed it is not enough for company directors to rely on overly optimistic projections to argue that the company had a reasonable prospect of avoiding insolvency.
“Directors should seek specialist legal advice to protect both themselves and creditors,” added Mr Ellis.
