The UK Government has put in place substantial measures to help mitigate the devastating effect of Coronavirus (Covid-19) on the economy. During this lockdown period, and economic downturn, company directors are trying to comply with the government’s measures, as well as satisfying their own obligations to the company.
Directors are concerned about fulfilling their responsibilities, acting with reasonable care, and in the best interests of the company, as required by the Companies Act 2006.
However, during these unprecedented times, the directors’ decision mechanism is usually dependent on two vital questions:
“How long is the lockdown going to continue for?”
“What can I do to comply with the Government’s measures and keep the business out of insolvency at the same time?”
On 28 March 2020, the UK Business Secretary announced that the law which prohibits the wrongful trading of companies will be temporarily suspended retrospectively from 1 March 2020 for three months, during the Covid-19 pandemic. In usual circumstances, the Companies Act 2006 requires directors to exercise reasonable care including ensuring that the company does not trade while insolvent. This rule mainly applies in the event that a company is unable to pay its debts as they fall due, or in situations where liabilities are greater than assets, and directors are under a duty to minimise potential losses to creditors. If no action is taken, a director may be wrongfully trading, which carries unlimited personal liability.
How does the temporary suspension affect the directors?
By the temporary suspension of wrongful trading, the threat of personal liability for directors for wrongful trading, for the period of the Covid-19 pandemic is lifted, with the aim to give directors greater confidence to continue to trade during the pandemic. In other words, the Chief UK Policy Director the Confederation of British Industry stated that “The temporary suspension of wrongful trading provisions, along with other measures, will give much-needed headroom for company directors to enable otherwise viable businesses to use the government’s support package and weather this crisis.”
The joint initiatives between the Government and Companies House are introduced to ease the administrative burden that comes with running a business, and to support the directors to focus on the fundamentals during these exceptional times. As part of the agreed measures, the following responsibilities are stretched during the Covid-19 pandemic:
- A three-month extension for filing year-end accounts. This extension must be applied for before the filing deadline, but is automatic and immediate on request. Where late filing has already occurred and is due to the pandemic, there will be a sympathetic response and there may be a break before penalties must be paid, or payment plans agreed.
- Temporary changes to strike-off policy. Where an application has been made for voluntary strike-off this will be published in the Gazette, but further action delayed to protect those who may have objections. Where strike-off is due to failure to file, Companies House will continue to write to companies but will not publish a Gazette notice. This does not apply to companies being dissolved through insolvency, or where the filing delay is reported as being due to the pandemic.
- Emergency filing service. This will enable a number of paper-only registrar’s powers forms to be uploaded for submission. This will cover a small selection of forms that do not currently have an online option to allow requests for rectification and removal of information on the register. This will be extended to include more documents and payments in the future.
Gender Pay Gap
The Government Equalities Office (GEO) and the Equality and Human Rights Commission (EHRC) has suspended gender pay gap reporting for 12 months. The rules apply to businesses and organisations with over 250 employees and while no data will be required until 2020/21, businesses can voluntarily complete the reporting once the pressures of the lockdown are over.
Other responsibilities which can be deferred during the Covid-19 pandemic include gender pay gap reporting and the publication of modern slavery statements.
Under section 54 of the Modern Slavery Act 2015, larger companies with a turnover in excess of £36m and other criteria, are required to publish an annual modern slavery statement. This sets out what steps are being taken to identify and address potential risks around modern slavery. During the pandemic, the Government has announced that businesses which need to delay the publication of their modern slavery statement by up to 6 months due to coronavirus-related pressures will not be penalised. When the statement is published, businesses should set out the reason for any such delay.
But even where a business needs to delay publication, the Government has emphasised that organisations must continue to tackle the risk of modern slavery in their operations and supply chains and recognise the increased potential for labour exploitation during the pandemic.
This is another example of a loosening on corporate reporting during the pandemic, but there is no scope to let things slide. Businesses will need to use their next modern slavery statement to demonstrate how they monitored risks during any such delay and adapted their activities and priorities in response. Even though gender pay gap reporting has been fully suspended for the year, with no catch-up requirement for 2019/20, most companies will have compiled the data during the year. Recognising that this is seen as an important measure of their approach to gender equality the expectation is that they will wish to catch up with reporting, if they have not already done so.
Please be mindful that these policy changes are temporary and will be reviewed as the pandemic develops.
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