Skip to main content

Cookies

We use cookies to help provide a better website experience for you, as well as to understand how people use our website and to provide relevant advertising.

By clicking "I agree", you'll be letting us use cookies to improve your website experience. To find out more or to change your cookie preferences, click "Manage Cookies".

We value your privacy

Like many other websites, our website uses cookies. Cookies are small files placed on your computer when you visit our site. They serve a number of purposes, including ensuring that certain parts of the website work properly, allowing us to understand which areas of our website are the most popular and allowing us to provide more relevant advertising messages. They don't allow us to identify you specifically and no personal data is gathered about you.

If you'd prefer that cookies weren't placed on your computer when you visit our site, you can use the controls below to allow or disallow different types of cookie. Some cookies are essential for the website to work, so they can't be disallowed.

  • These cookies give us anonymised information on how people use our website. We use these cookies to help us tailor our site to meet the needs of our visitors, for example by making sure our most popular pages are easy to find.

  • These cookies serve a number of purposes, such as allowing you to share our content with your friends and social networks. We also use these cookies to provide targeted advertising, so you may see relevant adverts based on the pages you look at on our website.

  • About
  • News & Insights
  • Careers
  • International
  • ESG
0370 1500 100
Dialog that contains search functionality
Irwin Mitchell Logo
  • Personal
    • Personal
    • Personal Home
    • Personal Injury Claims
      • Personal Injury Claims
      • Personal Injury Claims Home
      • Abuse & Criminal Injury Claims
      • Accidents In Public Places Claims
      • PI Journey
      • Accident At Work Claims
      • Air, Rail & Maritime Claims
      • Asbestos & Mesothelioma Claims
      • Changing Solicitors During a Personal Injury Claim
      • Group Claims
      • Holiday Accidents & Illness Claims
      • Illness Compensation Claims
      • Industrial Disease Claims
      • Injury Types
      • Military Injury Compensation Claims
      • No Win No Fee Personal Injury Claims
      • Personal Injury Claims In Scotland
      • Personal Injury Information
      • How To Claim Compensation For Personal Injury
      • Product Liability Claims
      • Rehabilitation & Medical Care
      • Road Traffic Accident Claims
      • Serious Injury Claims
      • Who Can Help?
      • Support Services
    • Medical Negligence Claims
      • Medical Negligence Claims
      • Medical Negligence Claims Home
      • Cancer Misdiagnosis Claims
      • Birth Injury Claims
      • Cauda Equina Syndrome Claims
      • Cosmetic Surgery Claims
      • Cerebral Palsy Claims
      • Defective Medical Device Claims
      • Dental Negligence Claims
      • Diabetes Claims
      • Fatal Medical Negligence Claims & Inquests
      • GP Negligence Claims
      • Hospital Negligence Claims
      • What Is Medical Negligence?
      • Meningitis Misdiagnosis Claims
      • Failure To Prevent Suicide Claims
      • Misdiagnosis Claims
      • Ophthalmic Negligence Claims
      • Pregnancy & Gynaecology Injury Claims
      • Sepsis Negligence Claims
      • Shrewsbury & Telford Hospital NHS Trust Maternity Care Claims
      • Stroke Misdiagnosis Claims
      • Surgery Compensation Claims
    • Family Law
      • Family Law
      • Family Law Home
      • Divorce Solicitors
      • Prenuptial & Postnuptial Agreement Solicitors
      • Child Abduction Solicitors
      • Civil Partnership Solicitors
      • LGBT+ Family Law Solicitors
      • Unmarried Couples' Rights
      • Divorce Financial Settlement Solicitors
      • Child Arrangement Orders
      • Family Mediation Lawyers
      • Out Of Court Divorce Solicitors
      • Separation Agreement Solicitors
      • Adoption & Surrogacy Solicitors
      • Counselling
    • Wills, Trusts & Estates
      • Wills, Trusts & Estates
      • Wills, Trusts & Estates Home
      • Estate Planning Solicitors
      • Powers Of Attorney
      • Trusts
      • Will Writing Services
      • Will Disputes & Contentious Probate
    • Conveyancing & Property Solicitors
      • Conveyancing & Property Solicitors
      • Conveyancing & Property Solicitors Home
      • Conveyancing Fees Calculator
      • Buying A Property
      • Selling A Property
      • Remortgage
      • Transfer Of Equity
      • Buy To Let
      • Absentee Landlord & Freeholder Tracing Service
      • Freehold Purchase (Leasehold Enfranchisement) Solicitors
      • Lease Extension Solicitors
      • Conveyancing Guide
    • Tax
      • Tax
      • Tax Home
      • Business Tax
      • Inheritance Tax
      • International Tax
      • Professional Negligence
      • HMRC Tax Investigations
      • Tax Disputes & Litigation
      • Tax Residence
      • Tax Returns & Compliance
      • Wealth Structuring
    • Probate
      • Probate
      • Probate Home
      • International Probate
      • Probate Sale Conveyancing
      • What Is Probate & How Does It Work?
    • Will, Trust & Estate Disputes
      • Will, Trust & Estate Disputes
      • Will, Trust & Estate Disputes Home
      • Trust Disputes
      • Inheritance Act Claims
      • Contesting A Will
      • Contentious Probate
      • Pre-Death Agreements
      • Professional Negligence
      • Challenging A Lifetime Gift
      • Financial Abuse
      • Statutory Will Disputes
      • Defending A Contested Will
    • Employment Solicitors
      • Employment Solicitors
      • Employment Solicitors Home
      • Employment Contract Solicitors
      • Employment Disputes
      • Dismissal & Redundancy Solicitors
      • Employment Discrimination Solicitors
      • Employment Lawyers for Legal Expenses Insurance
      • Harassment & Bullying At Work Solicitors
      • Parental & Family Friendly Employment Rights
      • Professional Discipline Solicitors
      • Recruitment & Promotion
      • Senior Executive Employment Lawyers
      • Settlement Agreements
      • Whistleblowing Solicitors
    • Elderly Legal Services
    • Protecting Your Rights
      • Protecting Your Rights
      • Protecting Your Rights Home
      • Actions Against The Police
      • Environmental & Planning Law
      • Assessment & Treatment Unit Solicitors
      • Data Protection Breach Claims
      • Education Law
      • Healthcare & Social Services
      • Human Rights
      • Judicial Review
      • Mental Capacity
      • Motoring Offences Legal Advice
      • Professional Regulation & Discipline
      • Dispute Resolution
      • Legal Aid
    • Immigration Solicitors
      • Immigration Solicitors
      • Immigration Solicitors Home
      • British Citizenship & Naturalisation Solicitors
      • EU & EEA Immigration Solicitors
      • Indefinite Leave To Remain Solicitors
      • Spouse Visa Solicitors
      • Innovator Visa
      • Tier 1 Entrepreneur Visa
      • Permanent Residence Solicitors
      • Tier 1 Investor Visa
      • Business Immigration Solicitors
    • Crime & Investigations
      • Crime & Investigations
      • Crime & Investigations Home
      • Crime
      • Fraud & Financial Crime
      • Court Martial Solicitors
      • Motoring Offences Legal Advice
      • Regulatory Investigations & Enforcement
    • Insolvency
      • Insolvency
      • Insolvency Home
      • Business Restructuring & Insolvency
      • Debt Consultancy
      • Insolvency Disputes & Litigation
    • Court Of Protection
      • Court Of Protection
      • Court Of Protection Home
      • Court Of Protection Deputyship
      • Personal Injury Trusts
      • Court Of Protection Problems & Disputes
      • Healthcare and Social Services
      • Frequently Asked Questions
      • Powers Of Attorney
      • Powers Of Attorney Disputes
      • Statutory Wills And Trusts
    • Agriculture & Rural Business
    • Landed Estates
  • Wealth Management
    • Wealth Management
    • Wealth Management Home
    • Asset Management For Personal Injury
    • Charity & Philanthropy
    • Estate Planning
    • Ethical & Sustainable Investing
    • Financial Planning
    • Intergenerational Wealth Management
    • Investment Management
    • Retirement Financial Planning
    • Succession Planning
    • Tax Planning
  • Business
    • Business
    • Business Home
    • Sectors
      • Sectors
      • Sectors Home
      • Agriculture & Rural Business
      • Consumer & Retail
      • Education
      • Financial & Professional Services
      • Landed Estates
      • Manufacturing
      • Media & Entertainment
      • Real Estate
      • Sport
      • Technology & Communications
    • Banking & Finance
      • Banking & Finance
      • Banking & Finance Home
      • Corporate Banking
      • Funds
      • Leveraged & Acquisition Finance
      • Real Estate Finance
      • Receivables Finance & Asset Based Lending
    • Business Crime
      • Business Crime
      • Business Crime Home
      • Anti-Bribery & Corruption
      • Asset Tracing & Recovery
      • Cartels & Illegal Price Fixing
      • Cybercrime
      • Dawn Raids
      • Deferred Prosecution Agreements
      • Extradition
      • INTERPOL Red Notices
      • Mutual Legal Assistance
      • Private Prosecution
      • Proceeds Of Crime Act
      • Unexplained Wealth Orders
      • Fraud Lawyers
      • Insider Trading & Market Abuse
      • Corporate Internal Investigations
    • Business Immigration
      • Business Immigration
      • Business Immigration Home
      • Business Visitor Visa
      • Innovator Visa
      • Prevention Of Illegal Working
      • Sole Representative Of An Overseas Business
      • Tier 1 Entrepreneur Visa
      • Tier 1 Investor Visa
      • Tier 2 & 5 Sponsor Licence
      • Tier 2 Visa
      • Tier 4 Sponsor Licence
    • Commercial
      • Commercial
      • Commercial Home
      • Commercial Contracts
      • Competition Law
      • GDPR & Data Protection
      • Information Technology
      • Media & Entertainment
      • Sourcing
      • Licensing
      • Notary Public Solicitors
    • Commercial Litigation & Dispute Resolution
      • Commercial Litigation & Dispute Resolution
      • Commercial Litigation & Dispute Resolution Home
      • Banking & Finance Litigation
      • Business Interruption Insurance Lawyers
      • Contract Disputes
      • Commercial Judicial Review
      • Defamation & Reputation Management
      • International & Cross-Border Disputes
      • Litigation Funding
      • Professional Negligence
    • Corporate
      • Corporate
      • Corporate Home
      • Corporate Advisory
      • Equity Capital Markets
      • Mergers & Acquisitions (M&A)
      • Private Equity
    • Costs Team
    • Environmental, Social & Governance
      • Environmental, Social & Governance
      • Environmental, Social & Governance Home
      • Environment
      • Social
      • Governance
      • International
      • ESG Legal Advisory Services
      • Cyber Security
      • Diversity & Inclusion
      • Legislation Library
      • ESG Media Library
      • Sports Sector
      • Manufacturing Sector
      • Real Estate Sector
      • Consumer & Retail Sector
    • Employment Law
      • Employment Law
      • Employment Law Home
      • Business Immigration
      • Employment Contracts, Policies & Procedures
      • Disciplinary & Grievance
      • Employee & Industrial Relations
      • Employment Lawyers for Legal Expenses Insurance
      • Employment Litigation & Dispute Resolution
      • Equality, Diversity & Discrimination
      • Flexible Working Arrangements
      • Health & Safety
      • HR Advice Service - IMhrplus
      • Managing Sickness Absence
      • Pensions
      • Recruitment
      • Restrictive Covenants
      • Restructuring & Redundancy
      • Self Employment, Contractors & Agency Workers
      • Employment Seminars, Training & Updates
      • TUPE
    • In-House Counsel
    • Intellectual Property
      • Intellectual Property
      • Intellectual Property Home
      • Defamation & Reputation Management
      • Copyright Lawyers
      • Design Rights Lawyers
      • Image Rights Lawyers
      • IP Audits
      • Online Marketplace Seller Account Or Listing Suspensions
      • Stopping IP Infringement By Sellers On Online Marketplaces
      • Patent Lawyers
      • Trade Mark Lawyers
      • Trade Secrets Lawyers
    • Legal Helpline
    • Pensions
      • Pensions
      • Pensions Home
      • Employment
      • Managing Death Benefit Trusts
    • Regulatory & Compliance
      • Regulatory & Compliance
      • Regulatory & Compliance Home
      • Road Transport & Operator Compliance
      • GDPR & Data Protection
      • Regulatory Investigations
      • Environment & Safety Regulatory Compliance
      • Financial Services Regulation
    • Real Estate
      • Real Estate
      • Real Estate Home
      • Corporate Occupiers
      • Real Estate Development and Regeneration
      • Construction & Engineering
      • Environmental
      • Real Estate Finance
      • Real Estate Investment
      • Later Living & Care
      • Planning
      • Property Litigation & Real Estate Disputes
      • Real Estate Tax
      • Residential Development
      • Strategic Land
      • Structured Real Estate
    • Restructuring & Insolvency
      • Restructuring & Insolvency
      • Restructuring & Insolvency Home
      • Corporate Insolvency
      • Partnership Insolvency
      • Directors' Duties
      • Restructuring Plans
      • Restructuring
    • Tax
      • Tax
      • Tax Home
      • Corporate Tax
      • Real Estate Tax
      • Tax Investigations
  • People
    • People
    • People Home
    • Search By Name
    • Search By Location
    • Search By Expertise
    • Business Management
  • Offices
    • Offices
    • Offices Home
    • Birmingham
    • Bristol
    • Cambridge
    • Cardiff
    • Chichester
    • Gatwick
    • Glasgow
    • Leeds
    • Liverpool
    • London
    • Manchester
    • Middlesbrough
    • Newbury
    • Newcastle
    • Reading
    • Sheffield
    • Southampton
  • Contact
  • About
  • News & Insights
  • Careers
  • International
  • ESG
Irwin Mitchell Logo
Dialog with Irwin Mitchell phone number
Call us on 0370 1500 100

We're here 24/7, 365 days a year.

man in a coffee shop using a mobile phone and a laptop
  • Home
  • News & Insights
  • News
  • Directors Duties: COVID-19

Directors Duties: COVID-19

06.04.2020

By Doug Robertson

The issues faced by directors during this global pandemic are far reaching and are of course not confined to the hospitality and travel industries. The social distancing guidelines put in place by the Government in order to keep the population safe, mean that businesses from financial services, to hospitality, to construction are all being affected by the change. Businesses are creating innovative and effective ways of providing continuity where safe to do so and where possible, and the Government has issued proposals for financial assistance to support businesses with meeting their fixed cost liabilities during this difficult period.

It is expected that some businesses will suffer financial distress as a result of this difficult time, and the inevitable absence of cash flow. As a result, the directors of those companies will need to pay very careful consideration to their duties. Below, we outline some of the key issues and risk areas that directors should personally consider, and continuously review.

KEY ISSUES

Wrongful trading

Under the usual course, a company’s directors have a duty to promote the success of the company and act in the interest of the company’s members as a whole. When a company is financially distressed and likely to be considered insolvent (in that it is unable to pay its debts as they fall due or its liabilities exceed its assets) then this focus shifts. It is then necessary for directors to act in the interest of the company’s creditors as a whole. Directors must preserve the value of the company in order to maximise the potential return to creditors. Technically, directors may still be liable under the wrongful trading provisions even if the company is not physically trading due to the social distancing measures introduced further to COVID-19, but when losses continue to increase.

Company directors should take every step to minimise losses to creditors once they conclude or ought to conclude that there is no reasonable prospect of avoiding insolvency. In the event that they fall short, an action may be taken against directors. If this happens, the directors would be liable to make such contribution to the company’s assets as the court thinks fit. This is likely to be the increase in losses to creditors incurred from the onset of insolvency until a formal claim was commenced, which may be a significant amount if the situation continued for several months.

Potential good news for directors?

The Government has stated that it will introduce:

- A short business rescue moratorium (effectively a break / breathing space) to protect companies from creditor action while they consider their options;

- A new court-based restructuring tool modelled on the pre-existing English Scheme of Arrangement; and

- New rules to prevent suppliers from cancelling contracts with businesses in an insolvency procedure.

The Government has also announced that it will temporarily suspend the wrongful trading provisions in the Insolvency Act 1986.

Provisions in respect of misfeasance and fraudulent trading remain in place.

It is important to note that though the Government has stated that it will provide financial assistance to companies during the crisis, this is (for the most part) in the form of interest bearing loans and tax payment deferral. These liabilities will need to be repaid in the future, and it is worth taking professional advice prior to taking on any further financial liability.

Misfeasance

In the event of a company’s insolvency, as above, the directors’ duties shift to a requirement to act in the best interest of creditors. Failure to consider the interests of the company’s creditors will amount to a breach of the directors' duties and could result in personal claims against the directors.

Relevant examples include where a director has:

misapplied, retained or become accountable for any money or other property of the company; or

been guilty of any misfeasance (such as breaching the insolvency duties); or

breached any fiduciary or other duty owed to the company.
 

Action may be taken to recover unlawful dividends, transactions at an undervalue, preferences, damages and compensation for breach of fiduciary duty or tortious duties of care. A director may be required to restore the company property in question, pay compensation and / or make such contribution to the company’s assets as the court thinks fit.

Notably, these actions are not limited solely to directors, and include any person who is involved with the formation of and management of the company. Those involved in the management of companies should be mindful of this when transferring any property out of the company’s ownership, and should seek advice prior to doing so in the event of the company’s financial distress.

Fraudulent Trading
 

Care must be taken to ensure that transactions must not be entered into which may defraud creditors. An example may be ordering supplies or taking customer deposits knowing that the contract will not be fulfilled. A practical solution could be to potentially pay customer deposits into a designated trust account in order to ensure separation from general working capital, however this could potentially amount to a preference or transaction at undervalue so this is an area where specialist advice is recommended.

There is a requirement to show that, during the fraudulent activity or business, there was a knowing intention to defraud, and awareness (or recklessness) of the consequences. There must also be an element of dishonesty involved, such as deliberate trading in the knowledge that debts would not be paid. This is not limited to directors but could also include senior employees who have the power to make decisions for the company. Those involved may be ordered to pay compensation for the amount involved in the transaction.

WHAT YOU CAN DO NOW

- Be aware of the risks and pitfalls when dealing with a financially stressed company. It will help your position if you take appropriate professional advice and can show that you acted in accordance with this. Remember, you do not have to get it absolutely right or be able to forecast the future; you just have to be able to demonstrate that the action you took was reasonable in the circumstances.

- Hold regular board meetings and ensure that the minutes of those meetings are accurately recorded in writing. Record the reasons for any decisions made and be able to explain the same in the event that these should be scrutinised at a later date.

- Create realistic financial plans both current and forecasted, so that there is an accurate record of the company’s position.

- Keep discussions flowing with the company’s supply chain (please see Irwin Mitchell’s specific article concerning supply chain issues here and review the ability to achieve a continuous supply of goods / services during this period. Have discussions concerning payment terms and whether these can be temporarily altered.

- Check the terms of finance documentation and any contracts where the company may be at risk of breaching covenants and in respect of any force majeure and illegality clauses. 

- Check the terms of any insurance policies to see if any cover is applicable. Some companies may have pandemic cover, but it is likely that this will be a small proportion.

- Have early, regular and transparent discussions with lenders.

- Consider utilising any financial assistance provided by the Government if necessary and if available. Please see Irwin Mitchell's articles on Government assistance here.

- Consider utilising any dispensation provided in respect of mortgage payment holidays, rental payment holidays, business rates holidays and furlough payments for employees where necessary and available. Please refer to our articles on employees and COVID-19 here.

- Contingency planning in the event that the situation should change or worsen.

In the event that you require advice concerning the above, please contact us. Irwin Mitchell also has a fixed price retainer for the provision of monthly and affordable advice from our experts to company directors during this difficult time.

 

 

Contact us today

To talk about your situation

Prefer not to call?

Use our form

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.

Key Contact

Doug Robertson
Doug Robertson
Partner
+44 791 867 1676 +44 (0)791 867 1676 Email Doug

Press Contact

David Shirt
David Shirt
PR Manager
0161 838 3094 0161 838 3094 Email David
  • Contact
  • 0370 1500 100
  • Contact Irwin Mitchell
  • Social Media
  • Twitter
  • Facebook
  • YouTube
  • LinkedIn
  • Instagram
  • About Irwin Mitchell
  • About Us
  • Social Responsibility
  • Careers
  • Business Management
  • Alumni Programme
  • SRA Regulated
  • Terms & Conditions
  • Accessibility
  • Privacy & Security
  • Hoaxes
  • Modern Slavery Act Statement 2021
  • Manage Cookie Settings

© 2023  Irwin Mitchell LLP

Irwin Mitchell LLP is authorised & regulated by the Solicitors Regulation Authority. Our Regulatory Information

Dialog that contains a form to request a callback.

Request A Callback

Enter you details below and we'll call you back, at a time of your choice

1000 characters remaining

Preferred date*
Today
Tomorrow

This data will only be used by Irwin Mitchell for processing your query and for no other purpose.