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Coronavirus (COVID-19)

Coronavirus (COVID-19)

Contents

Business start-up and coronavirus

In this section you'll find information and updates related to coronavirus that are relevant to the law on starting and running a business.

The UK's response to coronavirus is changing regularly and often very quickly. While we'll continue to make every effort to keep this page up to date, there may be short periods where what you read here is not the latest information available. Where possible we've tried to provide links to official sources, so you can check the current situation.

AGMs and filing requirements

Ordinarily, companies have statutory obligations to hold meetings and to file documentation on the Companies Register. The pandemic has made it difficult to meet these requirements, and on 28 March 2020 the UK government announced that it would bring forward legislation to help.

The legislation is not yet available, but the Department for Business, Energy & Industrial Strategy has prepared a Q & A to help companies plan for the coming months.

The UK government has also announced that companies can apply online for a 3-month extension for the filing of their accounts. These will be automatically approved if the reasons are COVID-19 related and the company has not already applied for an extension, or sought to change its year-end that results in an extension for the time for filing accounts.

Directors' duties and wrongful trading

On 28 March 2020, the UK government announced that it would amend insolvency law to give companies breathing space and keep trading while they explore options for rescue. They also said they would temporarily suspend wrongful trading provisions retrospectively from 1 March 2020 for 3 months.

The legislation has not yet been published, but it is thought that it may introduce 2 new restructuring procedures.

One procedure is the introduction of a 28-day business rescue moratorium where directors would be able to continue to trade while seeking to restructure the business, with the help of an insolvency practitioner.

The second procedure is a court-based restructuring tool allowing the company to propose a restructuring plan to its creditors. There may also be a ban on the enforcement of termination clauses, which enable suppliers to end a contract in the event that the customer/counterparty goes into an insolvency process. Currently the ban extends only to essential suppliers of gas, water, electricity, IT and telecommunication systems.

The wrongful trading provisions state that if, at some time before the start of a liquidation or administration, a director knew or ought to have known that there was no reasonable of avoiding either outcome, and they failed to take every step to minimise the potential loss to creditors, then a court can require the director to contribute to the company's assets. In other words, a director can incur personal liability for wrongful trading.

The suspension of the wrongful trading provisions does not, however, provide complete protection to directors. Other claims can still be made that could make directors personally liable. E.g.:

  • Fraudulent trading;
  • Misfeasance;
  • Breaching duties set out in the Companies Act 2006 (including a duty to consider the interests of the company's creditors at the point when the director knows or should know that the company is or is likely to become insolvent); or
  • Where a company enters into transactions that can be clawed-back by an administrator or liquidator.

Directors of companies that are experiencing financial uncertainty and distress and that may become insolvent, need to consider and act in the best interests of their creditors, and document their decisions and thought processes to be able to demonstrate that they have considered these interests in their decision-making.

A director's general duties under the Companies Act 2006 remain unaffected. These are to:

  • act within powers;
  • promote the success of the company;
  • exercise independent judgment;
  • exercise reasonable care, skill and diligence;
  • avoid conflicts of interest;
  • not accept benefits from third parties; and
  • declare an interest in a proposed transaction or arrangement.

Tax and financial matters

More support is being provided by the UK government to self-employed individuals and to businesses.

In particular, a time to pay scheme will help businesses and self-employed people manage their cash flow in light of financial difficulties caused by the pandemic. There is a dedicated helpline and bespoke arrangements will be offered to enable taxpayers to defer tax liabilities for a time-limited period. Interest and penalties arising from the late payment of tax as a result of COVID-19 or from administrative difficulties in contacting HMRC will be waived.

The deadline for upcoming self-assessment income tax payments for self-employed people, otherwise due on 31 July 2020, has been deferred to January 2021. Late payment penalties and interest will not be charged for this period.

The government has introduced the Self-employment Income Support Scheme, for self-employed people who have lost income as a result of the pandemic. Under the scheme, self-employed people will be able to claim a grant worth 80% of their average trading profits from the tax years 2016-17, 2017-18, and 2018-19, up to a maximum of £2,500 per month for 3 months. Payments will start to be made at the beginning of June 2020 and grants will be taxable.

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