Government’s decision to end temporary protection for company directors means they face legal action if their business is seriously struggling but they don’t cease trading.
Labour warns ending this protection means we are now in the “calm before the storm” and likely to see insolvencies snowball. Government’s failure to prevent business insolvencies would mean emergency loans are written off, costing taxpayer money.
The Government must urgently extend the suspension of ‘wrongful trading’ rules for company directors or risk seeing a flood of businesses closing up shop before Christmas, Labour has warned today.
While protections against insolvency for businesses have been renewed until 31 December, the suspension of a rule which means business directors must cease trading if their company is facing insolvency, has not been renewed in tandem and ended on 30 September.
This means company directors could now face financial or legal action if their business is struggling to stay afloat during the crisis but they do not cease trading, undermining Ministers’ rhetoric about the action they are taking to help businesses survive the economic effects of the pandemic.
Business Minister Paul Scully said the suspension intended to “support directors to continue to trade whilst accessing the financial support put in place by Government” but has offered no explanation for ending that suspension despite restrictions tightening and the crisis raging on.
Last month, there were 926 company insolvencies – a rise of around 150 on the month before. The number of company insolvencies in September was a third lower than it was last year, which the Government suggests is “partly driven by government measures put in place in response to the coronavirus pandemic.” This means measures put in place to protect companies from insolvency during the pandemic, welcomed by Labour, have been working – but a flood of insolvencies is likely if they are removed while the crisis is ongoing.
Shadow Business Secretary Ed Miliband has called for the wrongful trading standard suspension to be renewed to the end of the year, to avoid company insolvencies snowballing before Christmas.
Labour is also warning that these insolvencies would ultimately cost the taxpayer, as emergency loans would be written off rather than paid back if the business goes under.
Ed Miliband MP, Labour’s Shadow Business Secretary, said:
“We are already seeing mass redundancies and rising unemployment, but measures to prevent businesses from becoming insolvent have helped keep the number of business closures low.
“Labour welcomed those measures. Yet Ministers cannot explain why they have pulled the plug on this protection. If it was right to help businesses stave off insolvency in June it is right now. The government seem to have moved from ‘we’re all in this together’ to ‘sink or swim’.
“Ministers claim to want to protect struggling businesses, but the decision to remove this key protection for business owners flies in the face of that claim. They must urgently change course or the risk is that we see insolvencies snowball before Christmas.”
