{"id":3900,"date":"2020-07-27T15:55:28","date_gmt":"2020-07-27T15:55:28","guid":{"rendered":"https:\/\/diskdrive33.com\/mks\/?p=3900"},"modified":"2020-07-27T15:56:48","modified_gmt":"2020-07-27T15:56:48","slug":"uk-relaxes-wrongful-trading-rules-and-thats-a-good-thing","status":"publish","type":"post","link":"https:\/\/diskdrive33.com\/mks\/2020\/07\/27\/uk-relaxes-wrongful-trading-rules-and-thats-a-good-thing\/","title":{"rendered":"UK relaxes wrongful trading rules, and that\u2019s a good thing"},"content":{"rendered":"<div class=\"elementor-element elementor-element-f78d834 elementor-widget elementor-widget-theme-post-content\" data-id=\"f78d834\" data-element_type=\"widget\" data-widget_type=\"theme-post-content.default\">\n<div class=\"elementor-widget-container\">\n<p><strong>The\u00a0recent <a class=\"_e75a791d-denali-editor-page-rtfLink\" href=\"https:\/\/www.gov.uk\/government\/news\/government-introduces-legislation-to-relieve-burden-on-businesses-and-support-economic-recovery\" target=\"_blank\" rel=\"noopener noreferrer\">news<\/a>\u00a0that the UK government is relaxing its\u00a0wrongful trading<\/strong><span data-preserver-spaces=\"true\"><strong> rules is to be welcomed.<\/strong> <\/span><\/p>\n<hr \/>\n<p><span data-preserver-spaces=\"true\">The proposal to temporarily shield directors from liability when their companies do business while having negative balance sheets is set out in the Corporate Insolvency and Governance Bill, which is currently going through the UK parliament\u2019s legislative process and is expected to be passed into law imminently. <\/span><span id=\"more-70408\"><\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Under the proposals, the government will temporarily suspend <a href=\"http:\/\/www.legislation.gov.uk\/ukpga\/1986\/45\/section\/214\" target=\"_blank\" rel=\"noopener noreferrer\">wrongful trading laws<\/a> as one element of a package of measures intended to assist UK businesses coping with the coronavirus pandemic.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Wrongful trading is governed by s.214 of the UK\u2019s Insolvency Act 1986. Existing case law on wrongful trading already provides some protection to directors where unforeseen economic circumstances have a profound effect on the market (see\u00a0<\/span><em><span data-preserver-spaces=\"true\">Nicholson v. Fieldings<\/span><\/em><span data-preserver-spaces=\"true\">[2017] All ER (D) 156). The outright suspension of s.214 for the three months commencing March 1, 2020 (to be extended if required) will remove any doubt in the minds of directors on this important issue.<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">If the letter of the law were to be applied, how many company directors would be guilty of wrongful trading by the end of this Covid-19 lockdown?<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The answer is \u201csignificant.\u201d With interruptions to cash-flow, supplies, and access to customers, the truth is that there are many companies before Covid-19, which have been technically insolvent for short periods. But directors usually risk-manage this position; they \u201ctrade-thru\u201d and emerge with the firm intact. This may be based on a reasonable expectation that, as a going concern, a business can and will likely make it through bumpy or seasonal times.<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The Covid-19 crisis has greatly complicated the trading positions of an increasing number of companies. Many, if not most, are struggling with cash flow issues. It is an unavoidable consequence of lockdown.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">It is highly likely that we will see an increase in the number of corporate frauds once Covid-19 is confined to history. During a recent interview with a London-based think tank, my UK-based investigator \u2013 who\u2019s been investigating corporate frauds since 1998 \u2013 explained that the vast majority of companies he investigated had been legitimate enterprises at their inception.\u00a0<\/span><span data-preserver-spaces=\"true\">However, some had fallen into disrepute when the company had hit hard times. He added that only a small number of companies he\u2019d investigated had been specifically set up as vehicles for fraud. This perspective mirrors my own experiences to some degree.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For the vast majority of companies, the changes to wrongful trading legislation will bring a sigh of relief. Some may remain afloat but overstep the mark, and in doing so, find themselves in trouble.<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">As with all these situations, it is always the minority that adversely affects the majority. So, the UK government must prepare itself not only for the plaudits linked to its common-sense approach but ultimately, the inevitable criticism when frauds are subsequently identified and reported.<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Will a greater number of companies survive the Covid-19 crisis as a result of the UK government\u2019s directive? Almost certainly. Will we see an increase in the number of directors who pushed their luck a step too far and found themselves in hot water? Inevitably. Will they be prosecuted? That\u2019s debatable.\u00a0<\/span><span data-preserver-spaces=\"true\">\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">One of the new guidelines states it will assist matters by: \u201c<\/span>Temporarily removing the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency.\u201d<\/p>\n<p><span data-preserver-spaces=\"true\">Time will tell if this move to protect directors from being accused of wrongful trading is a success. But time will also tell if the UK government\u2019s intervention can also save directors from themselves.<\/span><\/p>\n<p><em>With thanks to Tony McClements, Senior Investigator at Martin Kenney &amp; Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud &amp; Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).<\/em><\/p>\n<\/div>\n<\/div>\n<div class=\"elementor-element elementor-element-3002891 elementor-widget elementor-widget-wp-widget-simple_author_box_widget_lite\" data-id=\"3002891\" data-element_type=\"widget\" data-widget_type=\"wp-widget-simple_author_box_widget_lite.default\">\n<div class=\"elementor-widget-container\">\n<div class=\"jupiterx-widget widget_simple_author_box_widget_lite\">\n<div class=\"jupiterx-widget-content\">\n<div class=\"saboxplugin-wrap\">\n<blockquote>\n<div class=\"saboxplugin-gravatar\"><a href=\"https:\/\/fcpablog.com\/author\/mkenney\/\"><img decoding=\"async\" class=\"alignleft\" src=\"https:\/\/fcpablog.com\/wp-content\/uploads\/2019\/10\/martin_kenney.png\" alt=\"\" \/><\/a><\/div>\n<div class=\"saboxplugin-authorname\"><span class=\"None\">Martin is Managing Partner of <a href=\"https:\/\/diskdrive33.com\/mks\/\" target=\"_blank\" rel=\"noopener noreferrer\">Martin Kenney &amp; Co.<\/a>, Solicitors, a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases.<\/span><strong>\u00a0<\/strong><span class=\"None\">In 2014 he was the recipient of the ACFE\u2019s highest honor: the Cressey Award for life-time achievement in the detection and deterrence of fraud. In 2017, 2018, 2019, and 2020 he was chosen as a global elite \u201cThought Leader\u201d by Who\u2019s Who Legal and also selected as the number one offshore asset recovery lawyer worldwide over the same period.<\/span><\/div>\n<\/blockquote>\n<div class=\"saboxplugin-desc\">\n<p><strong><a href=\"https:\/\/fcpablog.com\/2020\/06\/30\/uk-relaxes-wrongful-trading-rules-and-thats-a-good-thing\/\">This article first appeared on the FCPA Blog (June 2020)<\/a><\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Only a relatively small number of companies are set up as vehicles for fraud, so the UK&#8217;s relaxing of its wrongful trading rules \u2013\u00a0while companies struggle with cashflow during the Covid-19 pandemic \u2013 is to be welcomed.<\/p>\n","protected":false},"author":2,"featured_media":3901,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[81],"tags":[255,89,256,84,254],"class_list":["post-3900","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","tag-cover-19","tag-fraud","tag-pandemic","tag-uk","tag-wrongly-trading"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - 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