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Midlands businesses get 'recovery space' with new laws

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Sweeping changes to insolvency laws hurried through Parliament have bought businesses in the Midlands vital recovery time.

That is the verdict of leading insolvency lawyer Sam Pedley, who says firms should draw confidence from the measures that will help them to survive as social distancing rules are tightened up again following the reported increase in coronavirus infections.

Mr Pedley, a partner at mfg Solicitors, said businesses were being offered “welcome relief” from the threat of insolvency while they worked through extremely tough trading conditions.

The imposition of bans on more than six people meeting up – following a surge in new cases – has meant businesses, especially in the hospitality sector, would be facing a bleak autumn were it not for the new laws.

“The new Corporate Insolvency and Governance Act was hurried through Parliament in just six weeks earlier this year – proving just how vital it was to get support measures in place quickly,” Mr Pedley said.

“The new rules encourage businesses to carry on trading and stops creditors from seeking their winding up while there’s still a chance that they can get things going again.”

The changes included a temporary suspension of the wrongful trading regime, which means a director will be assumed not to be responsible for the financial position of the company getting worse at this time. Directors still have to abide by all their other duties, however, including making sure they act in a way to promote the success of the company for the benefit of and in the interests of their members if it looks like the company might go insolvent.

Suppliers have been permanently banned from halting supplies because of their customer’s insolvency, even if they have not been paid for previous orders.

“That’s good news for struggling customers but a huge headache for their suppliers, who will need to look carefully at their contracts and make sure it’s set out that they can terminate on early signs of distress if they want to protect their own products and services,” Mr Pedley added.

“All of this is intended to give businesses space to recover, time to adjust to the challenges of trading in the time of social distancing, and ensure they aren’t cut off by their suppliers. And with the rules on contact between households tightening up as we head into autumn, these measures will become just as important as they were at the height of the pandemic.”

Readers requiring more information can contact Sam through or by calling 0845 55 55 321.