Relaxation of Insolvency Provisions in the Companies Act

12 May 2020 | Legal Updates

According to the Companies Act, directors can be held liable personally should they trade or take on debt if there’s a significant risk that they won’t be able to repay their debts when they become due. 

The uncertainty the Covid-19 pandemic brought has many directors wondering whether they should keep going, or rather throw in the towel. To avoid premature liquidations, the Government announced some relaxation from the insolvency rules.

If a company keeps trading and take on debt over the next six months, they will not be in breach of the Act, if: 

  • they believe the company will be able to keep trading, despite the difficulties
  • the company was able to pay the debts that fell due on 31 December 2019, and
  • the directors expect that they’ll be able to repay their debts within the next 18 months.

That’s the change in a nutshell. There are more intricacies and exceptions, so if you’re concerned about the going concern of your business, come chat to us first before you pull the plug, or just keep on trading.