The government’s intervention to protect companies hit by COVID-19, means that companies are being given breathing space that could help them avoid insolvency and the threat of personal liability from wrongful trading.
Under Insolvency legislation, directors may be personally liable from wrongful trading if the company has gone into insolvent liquidation and they carried on business after they knew, or ought to have known, that the company was heading for insolvency.
For more information on the Corporate Insolvency and Governance Act 2020, see the following briefing from Bates Wells solicitors.
Staying solvent
In the current climate many charities are facing financial troubles which means that the Trustees may have to make some difficult decisions. For example, organisations with limited reserves may find it difficult to remain solvent.
Thankfully emergency funding streams have been made available for charities which should help but this may not save every charity. Charity Trustees and Directors of not-for-profits need to put plans and safeguards in place to keep their organisations afloat or regretfully they may have to plan for winding them up.
The following guidance from Bates Wells solicitors on Charity Governance and solvency is a guide for trustees concerned about solvency which includes an important plan of action in managing the current financial crisis.
Charity Governance and solvency, a coronavirus guide
Other relevant guidance
Winding up and dissolving an organisation
Guidance for charities experiencing financial difficulties
