The UK government has recently issued a further set of rules aiming to assist companies to help adjust to the consequences of the coronavirus COVID 19. These include:
a) Introduction of a legal framework to allow businesses to hold their Annual General Meetings (AGMs) in accordance with current limitations on movements and meetings issued by the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 in England, as well as the Health Protection (Coronavirus Restrictions) (Wales) Regulations 2020 in Wales;
b) alterations to the UK’s insolvency legislation; and
c) temporary suspension of wrongful trading for the directors of the company.
AGMs
According to the government the new legal framework will be addressed to those companies that under the current legislation are required to hold AGMs (ie public limited companies) and will ensure that those AGMs will be held safely and consistently with the current restrictions in movement and gathering adopted in light of COVID-19.
Additionally, the new legislation will give room to companies who have not yet sent their notice, to postpone their AGMs outside the 6 months period from their current year end and for those companies who have already served their notice to hold their AGMs online.
UK Insolvency framework
The government aims to alter insolvency legislation to enable businesses to keep trading and at the same time being in a position to investigate alternative ways of survival. Therefore, new restructuring options will be added to the current UK Insolvency regime such as:
– a moratorium for companies to give them breathing space from creditors enforcing their debts for a period of time while they seek a rescue or restructure process;
– protection of essential supplies such as energy, raw materials, broadband while attempting to rescue; and
– a new restructuring plan, that will be binding on creditors.
The measures will build on potential reforms previously announced in August 2018 and the author understands that the government will be fast tracking the earlier proposal amid the current pandemic. The intention of the government is to include key safeguards for creditors and suppliers to ensure that they are paid.
Wrongful trading
There will be a temporary suspension of wrongful trading provisions for company directors to remove the threat of personal liability during the crisis, applied retrospectively from 1 March 2020. The current wrongful trading rules have been of particular concern to directors in recent weeks, given the risk of personal liability for directors if they fail to take every step to minimise potential losses to creditors once there is no reasonable prospect of avoiding an insolvent liquidation/administration, which may push directors to file the company for insolvency proceedings prematurely.
Existing laws for fraudulent trading and the threat of director disqualification will remain in force as a deterrent against director misconduct.
Additional UK Actions
The above actions follow a series of measures adopted by the government to curb the economic effects of the pandemic to the UK companies which include among others:
• a three-month extension period for filing accounts. Even though companies need to apply for extension as usual, those citing COVID-19 as the reason for extension will be granted immediately and automatically granted an extension. Companies House reports that more that 10,000 companies have already successfully applied for an extension;
• job retention scheme that allows businesses to furlough employees who cannot work due to COVID-19 with businesses being able to claim 80% of their employees’ wages from the government, up to a maximum of £2,500 per person, per month before tax;
• a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England;
• the Covid Corporate Financing Facility, a new lending facility from the Bank of England to help support liquidity among larger firms, provided they had a short or long-term rating of investment grade (or equivalent) as at 1 March 2020; and
• the option to defer VAT payments due between 20 March and 30 June 2020, until 31 March 2021.
Yiannis Efthyvoulou
iefthyvoulou@redfernlegal.com
