Khai Nguyen EUME King & Wood Mallesons
As one element of a package of measures intended to assist UK businesses with coping with economic difficulties brought about by the coronavirus pandemic, the UK government will temporarily suspend wrongful trading laws. The proposal to temporarily suspend wrongful trading laws is set out in the Corporate Insolvency and Governance Bill (the ‘Bill’), which is currently going through the UK parliament’s legislative process and is expected to be passed into law imminently. The suspension is set to commence from 1 March 2020 and will end 30 days following the Bill coming into force.
Whilst the temporary suspension of wrongful trading laws is helpful and does not require any proof of connection to the economic downturn caused by the pandemic, it is also important to note that the suspension will not apply to all UK companies, as the Bill sets out many exceptions to the suspension of wrongful trading laws.
The following companies will be excluded from the temporary suspension of wrongful trading laws:
- insurance companies;
- electronic money institutions;
- investment banks and investment firms;
- payment institutions;
- operators of payment systems;
- recognised investment exchanges and clearing houses;
- securitisation companies;
- companies that are party to capital market arrangements;
- public-private partnership project companies; and
- overseas companies that correspond with the abovementioned exceptions.
The exceptions set out in the Bill are quite technical and involve many forms of UK regulated firms and regulated activities. Most importantly, it should be kept in mind that wrongful trading laws will not be suspended for all companies in the UK, and directors should consider whether their companies fall within any of the numerous exceptions set out in the Bill prior to relying on the temporary suspension of wrongful trading laws to shield them from liability that would otherwise accrue under the Insolvency Act 1986.
King & Wood Mallesons’ Banking & Finance team are available to discuss your queries on all areas of finance and financial markets law, please contact Khai Nguyen in our London office.