The government has introduced new laws to protect struggling businesses from having to file for bankruptcy due to Covid-19.
The Corporate Governance and Insolvency Bill will introduce new corporate restructuring tools to give companies the breathing space and tools required to maximise their chance of survival.
It aims to temporarily suspend parts of insolvency law to support directors to continue trading through the emergency without the threat of personal liability and to protect companies from aggressive creditor action.
“This is a particularly challenging time for businesses right across the UK, and we are doing all we can to support them through this period,” said business secretary Alok Sharma.
“Our proposals have been widely welcomed by business groups.
“The bill will help companies that were trading successfully before the Covid-19 emergency to protect jobs and put them in the best possible position to bounce back.”
The corporate governance measures include a change to termination clauses in supply contracts, meaning that when a company enters an insolvency or restructuring procedure its suppliers cannot use contractual terms to stop supplying or put up prices.
The bill will introduce a new restructuring plan that will bind creditors to it and temporarily remove the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency.
It will also introduce a new moratorium to give companies breathing space from their creditors while they seek a rescue.
“The incoming Corporate Insolvency and Governance Bill will be an important step to helping many small firms during this crisis,” said Mike Cherry, national chairman of the Federation of Small Businesses.
“The measures will immediately go some way to mitigate some of the problems small businesses are facing, such as the relaxation of wrongful trading rules which will allow directors of struggling companies to continue trading without fear of legal repercussions.
“The company moratorium, filing extensions and voiding of statutory demands are particularly important for smaller businesses, it is important that these provisions continue for as long as is necessary.”