Suspension of wrongful trading: what does this mean for charitable companies?

Many charities of all sizes are finding themselves under immense financial pressure as a result of the Coronavirus pandemic. The Small Charities Coalition reported that a total of 61 charities closed on Monday alone this week.

Recently, as part of efforts to protect businesses during the crisis, the government has announced a series of proposed changes to the corporate insolvency framework – including the suspension of the wrongful trading provisions.

Usually, under s. 214 Insolvency Act 1986, a director may be liable to contribute to the assets of the company if at some point before the commencement of the winding up, the director knew, or ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation.

This often prompts a director of a struggling company to seek advice from an insolvency professional, to avoid the risk of liability.

The proposed change will be relevant not just to directors of businesses generally, but also to the directors / charity trustees of some charitable companies that are presently struggling as a result of the pandemic.

Does the change, however, mean directors of charitable companies should act differently if their charitable company is struggling? 

Lino Di Lorenzo has written an article over on our Coronavirus hub explaining why directors of any company should almost certainly not change the way they act, despite the proposed changes to the corporate insolvency framework.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.


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