Business FAQs

Due to the Covid-19 pandemic, Companies House announced in April 2020 that the process of voluntarily striking off a company from the register would be paused. This meant that, once an application for striking off was received by Companies House, they would publish a notice in the Gazette, but would thereafter suspend any action to dissolve the company. The rationale behind this decision was to protect the company’s creditors and any other parties that wished to object to the company being dissolved.

From 10 September 2020, Companies House resumed the standard process for applications that were sent to them during the pause period. Applications for voluntary strike off received from 10 July onwards will not be affected by the Covid-19 temporary measures.

HMRC have recently announced a change in their approach due to the current lock down restrictions and are now willing to accept electronic copies of original documents which have to be emailed to stampdutymailbox@hmrc.gov.uk. An electronic copy of the signed SH03 (or, for that matter, if we are looking at a normal share transfer, the stock transfer forms) can be submitted to HMRC . If signing and scanning the original form is not an option, a version that is signed electronically will be accepted instead.

The payment of the stamp duty itself is still required within the required 30 days and this can be made by electronic transfer such as Faster Payment, BACS or CHAPS and an email must be sent to HMRC setting out the details of the transaction and a payment reference so that HMRC can identify the payment. The payment account details are set out on HMRC’s website The payment reference should be the name of the person making the payment and the amount paid. For example,” JBrown/240.00.” HMRC say they will deal with these applications within 15-20 working days.

Please note that any paperwork or cheque sent by post will no longer be processed by HMRC and therefore the method detailed above should be followed until further notice. Any submissions made by post which have not been returned to date should be resubmitted electronically using the new system.

Much will depend upon the wording in your share sale agreement. However, I would imagine that this says you are entitled to all your sale proceeds if you are a “Good Leaver” and not if you are a “Bad Leaver”. A Good Leaver would typically be someone who ceases to be employed by the company within the 12 month window after completion because of ill health, death, or because they are made redundant or unfairly dismissed. By contrast, a “ Bad Leaver” would be someone who just voluntarily resigns, with or without notice, within the first 12 months or who is dismissed fairly for eg gross misconduct etc.

By asking you to take a pay cut (and assuming the company is not going to make up the balance of your salary which is not paid by the government’s scheme), you have to consent to the change – and if you do not, that represents a change in the terms of your employment by your employer and in all likelihood a breach that entitles you to treat the contract as terminated if you so wish: again depending upon the wording in your sale agreement – this would ordinarily make you a “Good Leaver” and mean you are still entitled to your sale proceeds.

In considering your position, also take into account:

1. Is the amount of sale proceeds you are still owed, deposited in a retention or escrow account and safely ring fenced? If so, at least you know that the buyer of your shares is “good for the money”, regardless of trading conditions over this difficult period. If not consider whether you would prefer to take a cut in salary to help safeguard the financial stability of the company and possibly your buyer so that in 12 months time it stands half a chance of being able to pay you rather than being an insolvent company which can’t pay you anything.
2. What does your share sale agreement say about what hurdles have to be overcome to show you are a Good Leaver? Have you, for example to show you are successful at an employment tribunal before you satisfy the test of being a Good Leaver? If so, that takes time and at the moment you will understand that hearing dates could be some way off – and there will be a cost to bringing proceedings.
3. Are there any other provisions in the share sale agreement which allow a disgruntled buyer, unhappy with your approach, to “make waves” to try and defeat your claim? ie -could they allege a warranty claim under the share sale agreement?
4. If money is in an escrow account it is not contributing to the buyer’s/company’s cashflow: why not see if you can do a deal to get it released to you in consideration of you agreeing to furlough?

If you are happy to abandon the job you can use this as a chance to terminate your arrangement with the sub-contractor if that is what you wish to do. Their instruction that you do not attend site is a repudiatory breach of contract. If you do wish to permanently terminate your arrangement with them, write to them to say “As a result of the suspension of your contract with X, and therefore our inability to work on site, we are treating your email of xxxx as a repudiatory breach of contract, and we accept that breach as terminating our contract. This is on the basis that termination is without prejudice to our right to be paid for the work already done”.

Of course getting paid for what you have done will be much harder if you take this line, but you may have decided to “cut your losses”.

If you had no wish to leave site but were forced to do so, you can claim damages for breach of contract because there was no “force majeure” term between you and the sub-contractor giving them the right to suspend the contract due to events outside their control. Read our blog “Coronavirus (COVID-19) and the meaning of “force majeure” for a more detailed explanation of the term “force majeure”.

The Coronavirus Business Interruption Loan Scheme supports small and medium-sized businesses with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years. The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees. The scheme will be delivered through commercial lenders, backed by the government-owned British Business Bank.

Running alongside this scheme is the Bounce Back Loan Scheme which allows smaller businesses to gain access to a six year term loan from £2,000 up to 25% of business turnover, to a maximum of £50,000. The government guarantees 100% of each loan.

Other sources of public funding may be available, including local authority grants for specific purposes, so when approaching the question of availability of finance, you should consider seeking appropriate professional advice to assist you to assess these options, and potentially to assist with cash flow projections. Some accountants and most qualified insolvency practitioners should be able to help here.

For more information, please see our blogs “The Coronavirus Business Interruption Loan Scheme“;  “Bounce back loans for smaller businesses” and “Financial support schemes available for SMEs during COVID-19“

The Corporate Insolvency and Governance Act 2020 (CIGA) was passed into law on 26 June 2020, in which there is a temporary provision to suspend the law against wrongful trading retrospectively from 1 March to 30 September 2020 to take into account the unprecedented financial climate the country finds itself in. Although many of the temporary provisions in CIGA have been extended, the government chose not to extend the ‘suspension’ of wrongful trading rules which therefore automatically expired on 30 September 2020. The government has since reintroduced the suspension of wrongful trading provisions from 26 November 2020 to 31 April 2021 pursuant to The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 and, under The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021, a further extension meaning that the suspension of wrongful trade expired on 30 June 2021.

However, please note that this second suspension and subsequent extension are not retrospective and therefore directors could be responsible for any worsening of financial condition of the company between 30 September and 26 November 2020. For more information, please see our blogs “Corporate Insolvency and Governance Act 2020 opens new frontier for insolvency law” and “Creditor action restricted until end of year, pre-pack sales to be tweaked sometime, return of Crown preference looming”

The news – first announced as a policy initiative in April – would have come as a relief to directors, many of whom would have been struggling to weigh how best to protect themselves and their families from the consequences of potential liability, with their desire to do the best for employees, suppliers and other stakeholders. While this offered some comfort to directors faced with difficult decisions, directors’ duties and certain other trading offences remained in place so this was a very difficult provision for the drafters and law makers in Parliament to get right. Many will argue that the drafting still very much left scope for courts in the future to find that continued trading was wrongful as all the temporary provision did in effect is ask the court to resolve any doubt in the directors’ favour. We therefore recommend directors continue to trade – or as the case may be resume trading – cautiously, by reference to the best information and advice they can reasonably access, and that they keep particularly careful records of their decisions, and the reasons behind them, during this time.

Under normal circumstances, directors of a company owe their duties to their shareholders. However, where a company is, “in the zone of insolvency” those duties change, and the interests of the company’s creditors are key. Breach of these duties mean personal liability, disqualification and requirements for the directors to account personally for improper transfers of assets or cash. These duties remain unchanged so the ability to say whether a company is insolvent is very important, particularly as decisions in the interests of creditors may be different to decisions benefitting shareholders. Think very carefully before declaring dividends which can only be made out of profits retained – or making directors’ loans of cash which may be needed for company cash flow. Having up to date management accounts and forecasts and projections (as far as possible) will be key to boards of directors in their decision making. Consider the availability of Government backed funding such as CBILS and bounce back loans and apply for it if necessary; please see our blogs for further details in respect of these CBILS and bounce back loans, but please be wary of taking on loans, or even applying for grants (many local authorities will consider discretionary grants) simply because they are available. The purpose of these loans and grants is typically to enable continued trading, so directors who take them and then close their companies shortly afterwards may potentially face difficult questions in due course about how this was actually in the interests of the company and its stakeholders. Look at whether you can bring any contractual obligations to an end using force majeure clauses. Think about partial shut down or moth-balling or phased re-opening of part of the business and hold regular (remote/virtual) board meetings to keep on top of this.

Even though the law on wrongful trading has been amended again temporarily, the offence of fraudulent trading (dishonestly incurring liabilities that the directors know cannot be met before the company becomes insolvent ) remains in place, and understanding of the company’s solvency will have a direct bearing on any director’s personal liability for that offence. Certain transactions may also be set aside under insolvency legislation, including a company entering into transactions preferring one or more of its creditors over others; transactions for no, or insufficient, value; and individual transactions (as opposed to general trading) defrauding creditors. All of these will continue to apply during the wrongful trading relaxation window, and require careful analysis on an ongoing basis. Directors’ duties must be assessed on a company-by-company, rather than group, basis. For more information on directors’ duties where a company is or might become either cash flow or balance sheet insolvent, please see our blog on directors’ duties.

Ignoring suppliers’ invoices even in these troubled times risks involving your company in avoidable legal costs, a winding up petition (which could freeze the company’s bank accounts) and potential personal liabilities in the event of the company’s insolvency. If you think you may have grounds to dispute the invoices you should ideally admit nothing and take immediate legal advice. If you are sure you have no defence to the invoices but are uncertain if you have the funds to pay everyone you owe, you should engage with your suppliers early but avoid making promises of payment until you have consulted with a qualified insolvency practitioner accountant.

Under the Corporate Insolvency and Governance Act 2020, there is a general prohibition (subject to exceptions) on winding up petitions based on the non-payment of invoices due to financial difficulties caused directly by COVID-19, initially until 30 September 2020, extended to 31 March 2021, 30 June 2021 and 30 September 2021. For the period 1 October 2021 to 31 March 2022, winding up petitions have an increased debt threshold of £10,000 and creditors must seek proposals from the debtor allowing 21 days for a response before they can petition. Each threat of petition should be looked at closely on its merits and requests for proposals for payment should be carefully considered; you should seek legal advice as soon as possible if you receive such request or petition.

We have seen examples of creditors, particularly in the construction industry, availing themselves of the limited exception to this prohibition since 30 September 2020, and proceeding with a petition anyway, which then goes to a preliminary hearing. These are typically listed as urgent business so as soon as you become aware of a petition being sent to court, you need to act. Issued and approved petitions can in principle be advertised as early as 7 clear business days following service at the debtor company’s registered office, but the petition can actually impact transactions and bank accounts almost immediately.

Delaying payment may seem an attractive solution to short term cash flow issues and may be entirely appropriate, for example to ensure that all of a company’s creditors are treated fairly. However, if you do not go about it carefully you risk bringing legal proceedings and/or a winding up petition down upon you and/or incurring contractual penalties and breaching funding conditions.

The general prohibition (subject to exceptions) on winding up petitions based on the non-payment of invoices due to financial difficulties caused directly by COVID-19 under the Corporate Insolvency and Governance Act 2020 applies retrospectively from 1 March 2020, initially  to 30 September but extended on four subsequent occasions to 31 December 2020, 31 March 2021, 20 June 2021 and 30 September 2021. For the period 1 October 2021 to 31 March 2022, winding up petitions can be granted for COVID-19 related debts (but not for outstanding commercial rents where the reason for non-payment was as a result of COVID-19), provided that the petition debt is £10,000 or more and that creditors have sought proposals from the debtor allowing 21 days for a response before petitioning. For more information please see our blog “Terminating a contract due to insolvency – new restrictions“.

If you think you need to delay a payment for a legitimate purpose, such as to obtain advice, you should avoid doing anything which could be construed as admitting any particular debt and seek to engage with your suppliers on a constructive basis, ideally without seeking anything but forbearance (i.e. no new credit).

Winding up petitions can have very serious consequences for a company, including the freezing of bank accounts and other assets. Even before they are formally advertised, winding up petitions may come to the attention of the company’s bankers or suppliers, and may trigger termination of unrelated contracts and untold reputational damage. If the threat is illegitimate – i.e. the sum claimed is fully disputed – you should obtain urgent legal advice and/or representation as it may be possible to resolve the threat early on. If it is justified – i.e. the company owes an undisputed sum of more than £750 which it cannot pay – you should obtain urgent Insolvency advice from a qualified Insolvency practitioner as it may be possible to make use of an alternate procedure or to secure appropriate funding to preserve the company’s business.

Under the Corporate Insolvency and Governance Act 2020, there is a general prohibition (subject to exceptions) on winding up petitions based on the non-payment of invoices due to financial difficulties caused directly by COVID-19, applying retrospectively from 1 March 2020, initially to 30 September but extended on four subsequent occasions to 31 December 2020, 31 March 2021 30 June 2021 and 30 September 2021. For the period 1 October 2021 to 31 March 2022, winding up petitions can be granted for COVID-19 related debts (but not for outstanding commercial rents where the reason for non-payment was as a result of COVID-19), provided that the petition debt is £10,000 or more and that creditors have sought proposals from the debtor allowing 21 days for a response before petitioning. Each threat of petition should be looked at closely on its merits and requests for proposals for payment should be carefully considered; you should seek legal advice as soon as possible if you receive a winding up petition. You should not simply assume you are safe from the possibility of a winding up petition, but likewise you should not threaten such action if the action itself would likely be unlawful.

We have seen examples of creditors, particularly in the construction industry, availing themselves of the limited exception to this prohibition since 30 September 2020, and proceeding with a petition anyway, which then goes to a preliminary hearing. These are typically listed as urgent business so as soon as you become aware of a petition being sent to court, you need to act. Issued and approved petitions can in principle be advertised as early as 7 clear business days following service at the debtor company’s registered office, but the petition can actually impact transactions and bank accounts almost immediately.

The short answer is yes, in principle, but trading the company on will require a very careful assessment of the cash demands of the whole business and it may be that other solutions are preferable for avoiding possible personal liabilities which might follow such a decision.

The short answer to this question is yes, but not without great care and, we suggest if your existing company is or might be insolvent if you do this, not without first engaging the services of a qualified Insolvency practitioner accountant to advise the board.

All enquiries on eligibility for, or provision of, the grants should be directed to the relevant local authority. The person should therefore contact his LA and ask them as to how long is it taking them to make the grants.

Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their reasonable control prevents one or all of them from fulfilling those contractual obligations.

Depending on their drafting, such clauses may have a variety of consequences, including: excusing one party from delay in performing their obligations, entitling them to suspend the performance of their obligations or claim an extension of time for performance; excusing the affected party from performing the contract in whole or in part; or giving that party a right to terminate.

Usually, the contract will list a series of events which are to be considered to be ‘force majeure events’. Where no relevant event is specifically mentioned, it is a question of interpretation of the clause whether the parties intended such an event to be covered. This involves considering whether the list of events included was intended to be exhaustive or non-exhaustive. Unless specific words are used to suggest that a list is non-exhaustive, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event, such as an epidemic, nonetheless intended that event to be covered.

To determine whether COVID19 is covered by force majeure, you will have to look at the specific clause within your contract. Our blog “Coronavirus (COVID-19) and the meaning of “force majeure” gives a fuller explanation.

‘Frustration’ is slightly different. A frustrated contract is a contract that, without fault of either party, is incapable of being performed due to an unforeseen event (or events), resulting in the obligations under the contract being radically different from those contemplated by the parties to the contract.

There are three main requirements for frustration:

• The intervening event must cause the obligation owed under the contract to become impossible or radically different from the obligation contemplated at the time of entering the contract;
• The occurrence of this event that caused the radical change cannot be due to either party; and
• The contract must not deal (or deal properly) with what will happen on the occurrence of the alleged frustrating event (i.e. the contract lacks a force majeure clause or does not otherwise allocate risk in the event of Coronavirus).

If frustration does arise, the contract will be brought to an end automatically. All parties are released from their obligations (except those that should have been performed before the frustrating event, which they can remain liable for). It should be noted that the courts are very reticent about permitting frustration as a means of ending a contract and it is not to be relied upon simply because the contracted force majeure clause is not sufficient, for example. The courts have demonstrated that, for example, contracts are not ‘impossible’ to perform where a supplier further up the supply chain has gone into liquidation, if there are other suppliers from whom goods can be sourced.

Again our blog “Coronavirus (COVID-19) and the meaning of “force majeure” gives a fuller explanation of the term “frustration”.

You will have to check on the particular terms of your policy as there is not a ‘one size fits all’ answer. If your policy is not clear on this point, we would advise that you call them directly and discuss it.

The contactless card payment limit has been raised from £30 to £45 in an emergency move to help tackle Coronavirus.

The £15 increase is to reduce the need for physical contact with machines, with scientists previously saying the virus can stay on particular surfaces for days. The changes were already being considered by the industry, but the process has been accelerated in the midst of ‘extraordinary circumstances’. The British Retail Consortium (BRC) said the last increase to £30 took two years to implement but the new limit would be working at some shops across the UK from April 1.

Your contract should have a clause (usually towards the end of the contract) which deals with how variations are dealt with. Such a clause would usually state that any contractual variations to the provisions of the contract have to be in writing and signed by both parties. Unilateral changes to contractual terms are usually not effective unless the contract permits them to be.

However, you may wish to consider the proposals in some circumstances, as sometimes, a reduced payment is better than no payment at all, or a longer delivery schedule is better than not receiving the goods at all. But in both of these examples, you would be consenting to the changes.

On 16 April 2020, Companies House announced that they will “ease off” the strike off procedure. This means that they are still processing applications for voluntary strike off, albeit later than usual due to the current circumstances, but placing them on hold halfway through.

Under the standard procedure, once you have submitted the DS01 form to Companies House, and if the form has been filled in correctly, they will write to inform you that a notice will be published in the Gazette. This will give the public and your creditors official notice of your intentions and an opportunity from them to object to the process. If no objections are brought in the two months‘ time period mentioned in the notice, the company will be struck off and a second notice will be published to effect the dissolution of the company.

Companies House took a temporary measure to suspend any further action once the first notice is published during the period 16 April to 10 September 2020 to protect the creditors of the company and any other interested parties by allowing them more time to object. This means that where a voluntary strike-off had been paused because of the suspension of the dissolution process, it restarted on 10 September if the original application was advertised in the Gazette more than two months earlier and no objections were received. Striking-off applications received from 10 July onward proceed in the usual way.

Courts and tribunals are currently open for face to face hearings, making sure that judges, legal professionals, staff and all attendees can maintain effective social distancing. National restrictions allow for travel to attend a court or tribunal, which includes where you are a juror, witness, defendant, complainant or victim.

The courts have, however, increased their use of telephone, video and other technology to facilitate remote hearings and try to make use of these where possible. Jury trials cannot be conducted remotely and are taking place in COVID secure buildings.

Further guidance can be found on the Ministry of Justice’s website.

It is important to remember that any IP formally appointed over a company – whether ultimately appointed by the directors themselves, a lender, one or more creditors, or the court – is bound by their own legal duties to investigate and pursue (or to sell to a third party where appropriate for the benefit of creditors) any proper claims against directors. The Secretary of State has a similar duty to pursue disqualification and/ or creditor compensation orders where it is observed that the director’s conduct fell below expected standards.

This means that there is everything in fact to be gained by directors consulting with their own choice of IP at an early stage, i.e. before the cash starts running out. The first thing the IP will do is take a health check on the company, which will help inform the directors’ decision making, and they will then explore all available options to hopefully ensure that the company does not need to enter an insolvency procedure at all. If their advice, however, is that a formal insolvency procedure cannot reasonably be avoided, they can help you to choose the right one, and to ensure that the directors do not fall foul of the sort of pitfalls along the way which might suggest that claims should be brought against them after the event. In being aware of their duties (for more information see our FAQ “What legal duties do I owe as a director which I need to be aware of during the Covid-19 Crisis”), seeking professional advice where needed, and maintaining clear records of their board decisions, directors keep themselves firmly on the right side of the line, and should have nothing to fear therefore if, in the end, the company itself  (as opposed to the underlying business, which in principle can be sold by an IP without the associated debts) cannot be rescued. Please see our blog for further details of directors’ duties.

The very worst thing that directors can do during a crisis is to fail to recognise and address the issues that their business is facing and to put a misplaced trust in their ability to simply fold the company at the last minute when all the money has already run out. IPs are there to assist where they can. They are heavily regulated, specialist accountants who are trained to respond positively to a crisis. They add a huge amount of value to the economy through their work, which often preserves any value in a company’s underlying business which can be recycled and recirculated to save or create jobs and productivity. Directors should never, therefore, regard the consultation of an IP as an admission of defeat. It is something to be welcomed, and may be just what directors need to help them in these unprecedented times.

Many directors will of course be very familiar with their legal duties, however, most directors who were trading businesses which were wholly profitable before the crisis will likely not have needed to concern themselves with such matters too much. Until now.

We thought it would be helpful to highlight some of the most important duties which – amongst others – become even more relevant when the long-term security of a business is starting to be called into doubt.

1 Act within your powers

Every director must act in accordance with the company’s constitution (broadly speaking, the Articles of Association) and only exercise their powers for the purposes for which they are conferred. This is an exercise in knowing your company. If you are not familiar with your constitutional documents, read them. If you do not understand them, or you realise they do not reflect the way you do business or will need to do business in the future, take advice on them, and if necessary change them with shareholder approval as appropriate. You may wish to review your trading terms and conditions at the same time.

2 Promote the success of the company

In general terms this duty requires directors to act in a way which they believe is most likely to promote the company’s success for the benefit of its shareholders as a whole. Directors should consider, among other things, the following:

• the long-term consequences of any given decision;
• the interests of the company’s employees;
• the need to maintain the company’s business relationships with suppliers and customers;
• the likely impact of the decision on the community and the environment;
• the desirability of maintaining a reputation for high standards of business conduct; and
• the need to act fairly as between shareholders of the company.

When a company approaches insolvency, however, this duty to promote success transforms by degrees from a duty to the shareholders into a duty to the company’s creditors. At its lowest, the duty will require you to do all you reasonably can to minimise any shortfall which the creditors might suffer if and when the company does fail.

In trying to meet this duty, the Insolvency Act steps in to remind directors that treating one creditor more favourably than another (particularly if the favoured creditor is connected to a director in some way), transferring company assets (including contracts and new business) to another party at an undervalue and paying yourself an income in the form of share dividends when there are no profits to justify it, are all expressly forbidden. If you do any of these things and the company finds its way into an insolvency procedure, you (and potentially anyone else who has benefited from this sort of conduct) can expect to be on the receiving end of claims.

Likewise, directors must not simply bury their heads in the sand and continue trading in exactly the same way if they are reasonably aware that the company is in difficulty. In the particular circumstances of the pandemic, it is likely that this duty would extend to a positive duty upon you to take such professional advice as you may need in order to challenge (if properly arguable) and/or negotiate down any contract clauses which place a burden on the company to do something which simply could not be done owing to the virus and/or the lockdown. On the flip side of this, if you are banking on the fulfilment of a contractual obligation to your company, you may be expected to take advice as to whether there is now a legal exposure for the company, e.g. because the other party might be released by law from that obligation. By taking advice and/ or renegotiating terms on the basis of such advice, you might gain valuable information and/ or mitigation which helps you justify a decision to either continue to trade as you are, make changes to your trading practices, or to shut up shop (for more information, please see our blog on force majeure).

3 Exercise independent judgement

Every director should exercise their own personal judgement when taking decisions for the company; the law does not allow you to abdicate or contract out of your general duties This duty does not prevent delegation to others with particular expertise provided such delegation is authorised constitutionally, independent judgement is exercised when deciding to delegate and the delegating director maintains oversight. A marketing director would, for example, be entitled to rely on the advice and opinion of the finance director when considering financial matters but would have an obligation to scrutinise and exercise independent judgement when following such advice.

A director should not (except in exceptional circumstances that are outside the scope of this note), enter into an agreement with another person to vote in a particular way at a board meeting. If in doubt about how you should vote at a board meeting, talk it out, insist that the board takes external advice, or ask for an adjournment so that you can take your own.

4 Exercise due care, skill, and diligence

Directors are not expected to be able to see the future, nor are they expected only to take decisions which bring the company unbridled success. They are allowed to make mistakes. Whether those mistakes are ultimately culpable, however, will be judged by the standards to be expected of a reasonably diligent person carrying out the functions of a director. All directors will be held to the same minimum standard of competence when making company decisions, regardless of whether they kept quiet during the decision process or chose to take no part in those decisions. Directors will also be held to the standard of the knowledge, skill, and experience they themselves possess. This means that if a director is also a qualified lawyer or accountant, for example, they may be held to a higher standard than directors who do not possess such specialised skills or training.

5 Avoid conflicts of interest and declare any personal interests in proposed transactions
Every director must avoid situations likely to give rise to a conflict of interests. Generally speaking, a director should not vote in a decision in which they have an interest but a conflict may be authorised by shareholders or (in certain circumstances) by other directors. As such, directors must declare the nature and extent of any direct or indirect interest they may have in a proposed or existing transaction or arrangement and this should be reflected in the minutes of the board meeting. Depending on the company’s Articles of Association, a director may be authorised to vote in relation to a proposed or existing transaction or arrangement provided such interests are declared but if in doubt, advice should be taken on this point to ensure that any decision has been taken with sufficient board authority. This is particularly important if, for example, the directors decide that the best thing they can do for the company’s creditors is to transfer some of its business to another company with which they are also involved.

6 Not to accept third party benefits

Directors must not, as a rule, accept benefits from third parties gained through their position or through a decision they take as a director. In the event of the future insolvency of the company, any pecuniary benefit derived by the director personally is likely to ring loud alarm bells both in terms of director conduct reporting and liability.

To a certain extent, compliance with the above duties is a matter of common sense. In practice, however, directors should ensure that they understand their duties in light of the applicable circumstances and record their decision making processes together with any professional advice obtained (for more information, please see our FAQ “If my company looks like it might be insolvent as a result of COVID-19, when should I make contact with an insolvency practitioner ?”) in order to evidence that they have considered their duties and acted properly.

Temporary provisions which override company rules were introduced to allow organisations to facilitate meetings having regard to the safety of their members, shareholders, directors and employees during the COVID-19 pandemic. These apply to incorporated companies, charitable incorporated organisations and Community Interest Companies but do not apply to unincorporated charities or associations.

Notwithstanding anything in your organisation’s constitution, general meetings which were, or are, held between 26 March and 30 March 2021, extended from 30 December 2020 (Relevant Period):

• need not be held in any particular place;
• may be held by electronic or other means;
• may allow vote to be cast by electronic or other means;
• may be held without any number of participants being together in the same place; and

During the Relevant Period, members and shareholders do not have the right to:

• attend such meetings in person;
• participate in the meeting other than by voting; or
• vote in any particular manner.

If Organisations were required by their constitution to hold a general meeting by a specific date between 26 March and 30 March 2021, they were able to extend such deadline to no later than 30 March. This change was not extended so all AGMs due to be held after 30 September must be held within the time limits specified in the Organisation’s articles or rules.

For more information, please see our blog ‘Holding AGMs during COVID-19 pandemic’.

Your starting point should always be to review your company, charitable incorporated organisation, or community interest company’s constitution to see whether electronic members meetings are prohibited (we recommend this being the starting point irrespective of the position under the Corporate Insolvency and Governance Act 2020).

You may wish to discuss with your directors, members or trustees alternative means of holding meetings as soon as practically possible and consider whether the meeting will be accessible to all members. Bear in mind that not everyone will be familiar with and/or have access to platforms such as Zoom or Skype.

We recommend you also keep in touch with your fellow trustees/members to decide how any upcoming meetings will proceed (in particular when it comes to voting).

For more information, please see our blog ‘Holding AGMs during COVID-19 pandemic’.

Unlike other forms of liquidation, and even though the law on MVLs is mostly found in the Insolvency Act 1986, an MVL actually requires a company to be fully solvent. If it weren’t, there would be no surplus available to distribute. The sum of the company’s asset value must exceed the sum of its liabilities and by and large it must be paying its creditors as they fall due. Value extracted by shareholders through an MVL is taken out as capital rather than income, and if the corresponding tax conditions are met (which, in very broad terms require shareholders to permanently pull out of the business in which the company was interested), a comparatively low rate of tax will apply. The idea of the corresponding tax relief is that capital value extracted in this way is available for investment in different types of project, or for recirculation and spending where it is needed in the economy generally.

An MVL will therefore not be right for everybody, but for shareholders whose companies have built up considerable cash reserves, or who have already sold their business and are waiting only for the money to roll in, and/or shareholders who are contemplating retiring from their current business in the foreseeable future, an MVL would seem an entirely appropriate option. If the tax incentives are falling away over time, this would obviously suggest that there is an opportunity here which might be missed.

For further information about MVLs, please see our blog “Is now the time to extract value from your business?”

In order to be able to access an MVL solution, the directors of the company (or a majority if more than two) must be willing to swear (before an independent solicitor, and on pain of serious criminal sanctions if a false statement is made) that all of the debts of the company will be paid within 12 months after the commencement of the MVL. In practice, this is not as onerous as it sounds.

Members of our team meet frequently (or in the lockdown context, video call remotely) with directors who need to make these ‘swears’ and typically a good deal of work will have been undertaken with the nominated IP beforehand to clarify the extent of any debts, ensure that all assets have been sold, and that all known tax and other liabilities have been brought up to date. In this way, the director can confirm this information with confidence.

For further information about MVLs, please see our blog “Is now the time to extract value from your business?”

Provided at least some of the legwork has already been done, including tidying as many finances as possible, resolving any claims or pending litigation, and priming all shareholders to be ready to pass the necessary resolution, an MVL can typically be started very quickly. From first enquiry with an IP, through to letter of engagement, drawing up of board minutes, drafting and swearing of the declaration of solvency and signing the rest of the papers, right the way through to distribution of surplus funds and/or assets in specie to shareholders can take as little as 8 to 10 days.

This means, of course, that if there is concern that a pending tax change could be implemented within a month, there would still in principle be time to get the MVL started and a distribution effected before the tax change takes effect. This assumes that any tax change does not take effect retrospectively and that there is a prompt exchange of information and correspondence. Typically, within 3 to 6 months of the liquidator’s appointment we would expect to see a final or balancing distribution being made in conjunction with the liquidator obtaining tax clearance, which would then allow the liquidation to be closed promptly and the company itself dissolved at Companies House.
For further information about MVLs, please see our blog “Is now the time to extract value from your business?”

Potential signs of distress that are common among businesses include both very obvious triggers and a number of less common signs, including but by no means limited to the following:

• Cashflow problems (in terms of paying wages or suppliers on time and/or triggering contractual penalties);
• Threats of creditor action, including notice of intention to issue a winding up petition;
• Problematic supply chain disruption;
• Regulatory breaches;
• Protracted involvement in litigation;
• Inability to project surplus net income sufficient to meet regular loan repayments; and
• deferred rents and/or tax obligations.

Any company experiencing any of these could well be facing financial issues, and its directors will be at risk of personal liabilities in the event of a future insolvency or dispute if they fail to seek and to follow prompt advice from a qualified and regulated source about how to resolve the situation.

For further information, please see our blog “Director dilemmas after 30 September 2021: navigating the risks of legal liability for trading whilst insolvent in the face of increasing wage costs”.

Put creditors of the business front and centre: It may seem overly cautious in a successful business, but it is never too soon to adopt this discipline, particularly when taking key business decisions such as acquisitions, disposals, taking loans, instigating funding rounds, moving trading locations, reorganisations and connected party transactions. Your current and future creditors are regarded in law as key stakeholders in your business, and if you get into the habit of actively considering their interests now and at every turn, this will stand you in the best possible stead in the event that the unthinkable happens.

Keep really clear records: In our experience, the single most common reason (excluding personal guarantees, which are obviously to be avoided wherever possible) why limited liability business owners face personal liabilities and/or disqualification following the failure of their business is that they failed to record why they did what they did, when they did it. Consequently, they are unable to prove their innocence when the blame for a company’s insolvency is laid at their door.

Getting into the discipline of keeping regular records of decision making will both improve the quality of the decision making itself and ensure that the reasons for that decision stand the test of time. Such records will record for posterity what information was (or was not) available to management at the time, ensuring you will not be judged with the benefit of hindsight.

Think of insolvency and restructuring professionals as your friends and allies: Time and again we become aware of instances where management has refused – sometimes despite the protestations of one or more directors or partners, or advice from trusted advisors such as the company’s accountants or solicitors – to even speak to an insolvency practitioner, even after a business has already started to fail.

In fact, we suggest that even businesses which from time to time may be doing very well should keep under review whether a consultation with an insolvency professional would still benefit the fitness of the business. Qualified, licensed insolvency practitioner accountants (IPs) are the only professionals truly equipped to advise management whether a company is either already or prospectively insolvent, but more importantly on the range of options which the business may have to ensure that it reverses an existing insolvency, avoids insolvency altogether, or accepts its insolvency but resolves it in the best available manner.

The question we often put to management who somehow fear the involvement of an IP at an early stage, therefore, is ‘what have you got to lose’?
For further information, please see our blog “3 practical legal tips for business management following COVID-19/ Brexit trade disruption”.