Director’s duties during lockdown

The Business Secretary, Alok Sharma announced on 28 March 2020 plans to amend insolvency legislation in England and Wales to allow breathing space for directors to include the temporary suspension of the wrongful trading provisions from 1 March 2020 for three months which would apply retrospectively. However, these provisions are yet to come into force and do not apply to Northern Ireland. Where does this leave directors and their potential liability if they fall foul of the legislation?

In ‘normal’ circumstances a director’s duties are owed to the company itself. Those duties are codified in the Companies Act 2006 and include:

  • To act within powers, i.e. within the rules of the company
  • To promote the success of the company
  • To exercise independent judgment
  • To exercise reasonable care, skill and diligence

The Chancellor of the Exchequer warned on 13 May 2020 that the “UK economy will face a significant recession this year”. In distressed circumstances the above duties continue to apply, however a director’s duties will be owed, principally, to creditors rather than to the company.

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.