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Insolvency and directors’ duties

20 January 2021

The Covid-19 pandemic has had a considerable impact on the already financially stretched education sector and we have seen an increase in our education clients seeking advice around potential insolvency. We therefore thought it would help to highlight our previous podcast from June 2018, which outlines some prudent steps that trustees should be taking to minimise their risk of being personally liable in an insolvency situation.

You can listen to the podcast on SoundCloud.

It is important to note that the UK Government has now reintroduced the temporary suspension of wrongful trading measures from 26 November 2020 until 30 April 2021, pursuant to the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020. The suspension was originally introduced in March 2020 under section 12 of the Corporate Insolvency and Governance Act 2020 but expired on 30 September 2020.

Wrongful trading is where directors can be personally liable to make a contribution to the company’s assets or liabilities incurred, if they continue to trade when they knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or administration. Even if a finding of wrongful trading could be made out, the protection offered to directors is that they are not expected to personally contribute for any worsening of financial condition of the company within the relevant periods.

Whilst some comfort can be taken from the reintroduced suspension of wrongful trading (removing one threat of personal liability which directors may face), the actions of directors could still be subject to scrutiny if, ultimately, insolvency proceedings are later entered into. Therefore, directors must continue to adhere to their other statutory duties whilst continuing to trade the business. There has been no relaxation of directors’ fiduciary and statutory duties, nor of the rules on fraudulent trading, and so directors are well advised to continue taking all of the usual precautions. Incurring debts in the full knowledge money will run out, with no reasonable prospect of a solvent solution, may still mean directors could face consequences for breaching their statutory duties or indeed for fraudulent trading, if the circumstances merited such.

If you have any questions or concerns about your arrangements with any of your suppliers, please get in contact with Chloe Poskitt on 0115 934 2058 or by email at chloe.poskitt@brownejacobson.com.

Training and events

4Oct

Keeping Children Safe in Education 2021 Online

The Keeping Children Safe in Education 2021 guidance includes a number of updates, the most significant of which is the creation of Section Two of Part Five. This introduces the concept of low-level concerns raised about staff, supply staff, volunteers and contractors.

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6Oct

Autumn regional HR forum - Manchester Online

We are pleased to invite you to join us at our next Manchester regional HR forums, providing an excellent opportunity to network, keep updated on topical matters and share best practice. We want these to be your events, and for you to get as much out of them as possible.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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