Bankruptcy is often considered as the only option when creditors are banging down the door. However, there are several other options available to individuals that should be considered first. Implementation of an alternative could avoid the serious consequences that follow bankruptcy. In this article, we set out the criteria and consequences of insolvency options for individuals.
Relief for Businesses impacted by COVID-19
The COVID-19 pandemic is an unprecedented event in world history. Never before have we encountered a worldwide shut down of economies. The impact of this pandemic is going to be equally unprecedented and the road forward will be paved with uncertainty.
There is little doubt, however, that there will be many businesses who are currently struggling and there will also be businesses that will not survive COVID-19.
On 3 April 2020 the government released its proposals for relieving some of the pressure on businesses. There are two key proposals in that package, the “safe harbour” for directors and the Business Debt Hibernation Scheme.
In summary, directors are being provided with a ‘safe habour’ from breaches of section 135 and 136 of the Companies Act 1993 provided that conditions are met. This will allow directors to continue to trade and take on new obligations over the next six months, when in normal conditions they may be in breach of their obligations. Full details of the proposed ‘Safe Harbour’ can be found here.
The Business Debt Hibernation Scheme provides businesses the opportunity to put proposals to creditors about the repayment of debt owed to them. If the proposal is accepted by a majority of creditors then it will be binding on all creditors. Full details of the Scheme can be found here.
There are other features of the Government’s COVID-19 package worth a mention. The period in which a liquidator may clawback a voidable payment is reduced from 2 years to six months for unrelated creditors. There are also other miscellaneous obligations that are on hold including providing temporary relief from the requirements of company constitutions where COVID-19 impacts are preventing reasonable performance. This will cover issues such as the inability to hold an annual general meeting and so forth.
The government will be introducing legislation to make the changes to the Companies Act 1993 and we expect that these will be implemented shortly. We will advise of further details as they are announced.
If you have any queries about how the relief package might assist you, or concerns about the impact of COVID-19 on the operation of your business, contact us for further expert advice.
This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.
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Sarah Rawcliffe
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