With the Coronavirus Job Retention Scheme (the Furlough scheme to you and me) coming to an end on 30^th September 2021 (*as it stands…Rishi, any update?), the vaccination program in full flow, the children happily returning to school (absent the dreaded ‘bubbles’) and staff going back to work, you would be forgiven for thinking that normality beckons.

Whilst this is all a positive step forward for the economy, and frankly much needed, it will inevitably open up a number of additional considerations for employers given what is still a challenging period. We outline below some things to consider:

• The End of Furlough – decisions will need to be made about those employees on furlough. If the employer can bring them back, then those conversations should be happening imminently. If sadly there is a need to consider making redundancies, again the process should be instigated now to allow for the necessary period of consultation. A common misconception at the moment is that the redundancy is a given because the employee has been on furlough – that does not follow, and it is still necessary to meet the legal test that the role is no longer required.

• Risk Assessment – for the workplace, it is hugely important that existing risk assessments are revisited, and new assessments undertaken considering the guidance, particularly in respect of social distancing and the new isolation rules. What the risk assessment should cover will vary depending on the nature of your work and work environment. The HSE have a handy template and guidance for Covid risk assessments, click here for the template. Employers can also use the Governments online tool, click here  for more information.

• Don’t mention the…Vaccination – well, you can, because of course the new isolation rules take into account whether somebody has been vaccinated. However, just be wary that this is likely to be a sensitive and potentially controversial issue. There is already a challenge to new legislation making the vaccination compulsory for those who work in care homes and in other sectors, some employers are applying their own conditions and requirements about staff being double jabbed. For us employment lawyers this whole area makes us twitch, considering the potential for discrimination claims right through to GDPR compliance. It is an entire topic in itself and is one to discuss with your twitchy employment lawyer.

• It is good to talk – the need for communication has never been more important, as we enter a new phase of safe working practices, hybrid working and that awkward moment when you don’t know if to shake a hand, fist pump, elbow bash or even go completely off piste and embrace. Keep staff in the loop not just about the changes being implemented within the workplace, but why they are being implemented.

There is no “one size fits all” solution to these matters and that is not us simply rolling out that old legal cliché. It is without doubt a matter for each employer to consider, in the context of their business and the staff they employ.

To find out more, please contact Mark Fellows. 

Temporary Suspension of Wrongful Trading until 31 May 2020: a limited breather for directors of UK companies

In response to the COVID-19 crisis, the UK Government announced on 28 March 2020 that it intends to amend insolvency law to suspend the offence of wrongful trading by directors of UK companies. At the time of drafting this article, we are still waiting for the exact terms of the proposed new regulations.

The suspension of the offence of wrongful trading is intended to ensure that, in the current uncertain COVID-19 environment where many businesses may be nearing insolvency, directors are able to take decisions to continue to trade and incur additional debt, including under the new government funding initiatives, without the threat of potential personal liability in respect of wrongful trading should the company ultimately fall into insolvency.

Directors have become increasingly concerned about the risk of personal liability that can arise in respect of wrongful trading. Under current legislation a director can be liable if they are found to have continued trading a business and did not minimise losses to creditors at a time when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration.

The measure is aimed at giving companies a breathing space and avoiding premature insolvencies by allowing directors to keep businesses going without the threat of personal liability.

What is the current legislation?

The current insolvency rules provide that if directors allow their limited liability company to continue to trade while insolvent or where liquidation becomes unavoidable, then they can become personally liable for business debts.

Under the wrongful trading provisions, a company director has a duty to take every step to minimise potential loss to the company’s creditors upon concluding that there is no reasonable prospect of the company avoiding insolvent liquidation or administration.

The court may order a director that is found liable of wrongful trading to make a personal contribution to the company’s assets in the amount the court thinks proper in light of the loss suffered by the company’s creditors. Any award is compensatory in nature and only arises if the company is worse off as a result of the continuation of trading.

These rules are often the trigger for directors claiming formal insolvency proceedings, in order to minimise the risk of incurring personal liability. Click here for the latest guidance.

What is being changed

In response to the COVID-19 crisis, the UK Government announced that the wrongful trading provisions would be temporarily suspended for three months with retrospective effect beginning from 1 March 2020 until 31 May 2020; and that the end date could also be reviewed thereafter.

The new measures do not modify the existing regime on directors’ duties. When taking on new debt whether under the government schemes or otherwise, directors should ensure that they meet their general duty to act in the way they consider, in good faith, to be most likely to benefit the company members as a whole, or, when there is a heightened risk of insolvency, to instead act in the interests of the company’s creditors.

Once a company enters formal insolvency proceedings, the directors’ duties will be owed to the company’s creditors instead. It is at this point that the suspension of the wrongful trading provisions will have a practical effect by removing the threat of personal liability where company directors elected to continue to trade in good faith using their best endeavours despite the company facing a high risk of entering insolvent liquidation.

The limitations to the change

However, this change will not affect the directors’ duties regime and other insolvency law offences such as fraudulent trading, transactions defrauding creditors and misfeasance. These rules remain in force to deter directors from misconduct.

In addition, a director may still be disqualified for wrongful trading under the Company Directors Disqualification Act 1986. The minimum period of a disqualification order is two years and the maximum is 15 years.

The proposal will therefore provide a limited “breathing space” for directors of UK Companies. It is still important for them not to overlook the need to comply with existing laws and mitigate the risk of breaching their duties when exploring options for corporate rescue. Directors still need to ensure that they obtain professional advice and not breach their duties.

To find out more, please contact Paul Marmor.