Written by Kyle Rowston-Wolcott.

The temporary changes made by the Government will effectively extend protection from unsecured creditors to 6 months for voluntary insolvency and temporarily suspend the duty for Director’s to prevent insolvent trading (see conditions below).

For the next 6 months…

There will be no liability for Directors trading in the ordinary course of business while insolvent.

Directors’ Liability for Insolvent Trading?

There will be no personal liability if directors continue to trade for the next 6 months while insolvent, so long as they continue to trade in the ordinary course of business. This means that you can continue to operate your business despite being unable to pay your debts.

For Directors to benefit from this temporary measure,

  1. The debt must be necessary to allow the business to continue during the six-month period (eg, this includes debts to pay employees and even improvements to allow your business to continue online);
  2. The debt has been incurred during the six-month period; and
  3. The debt is incurred before an administrator or liquidator is appointed during the period.

Please note:

  • Once this temporary 6-month respond period has passed your creditors may begin to wind up your company if you are deemed insolvent.
  • A failure to respond to a statutory demand will create a presumption of insolvency.
  • In addition, any dishonest or fraudulent acts in relation to insolvent trading will not be exempt from liability.

If you are a Director then it is still important to seek legal advice first before considering insolvent trading as you may not be eligible for the above temporary benefits.

If you are considering insolvency, it is also important to seek legal advice to ensure that you have fully considered all the options available to you, especially in light of the Government’s temporary measures.

The contents are for informational purposes only and do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such.

There are several strategies that can take advantage of these new laws and help extend the continuation of your business during these times.

Uther Webster & Evans can provide you with advice and assist you with your commercial and personal affairs.