The government has announced that it is temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability. In addition legislation will be introduced to ensure those companies required by law to hold Annual General Meetings (AGMs) will be extended greater flexibilities, including holding AGMs online or postponing the meetings.
Temporary suspension of wrongful trading provisions
In addition to their general duty to exercise reasonable care, skill and diligence, company directors have the duty under under section 172 Companies Act 2006 to act in the way that they consider, in good faith, will promote the success of the company (and in doing so, have regard to a number of factors, including the long-term impact of decision making and the interests of employees).
Where a company goes into a formal insolvent liquidation or administration, the insolvency practitioner can require a contribution from relevant directors, if at some point before the commencement of the winding up of the company or the insolvent administration, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation or insolvent administration, but continued to trade.
A wrongful trading claim against a director is compensatory rather than penal in nature, and is intended to provide creditors with recourse for the loss suffered from the point in time at which the director developed (or should have developed) the relevant awareness.
Relaxation of these wrongful trading rules will reassure directors that the difficult decisions they have to make about the future viability of their business will not have to be unduly influenced by the exceptional circumstances which are entirely beyond their control and they will be able to apply for the various grants and reliefs on offer to businesses as part of the Coronavirus support
Temporary relaxation of requirement to hold an AGM
This second measure follows the announcement by Companies House that companies affected by Coronavirus would automatically and immediately be granted a three-month extension to the filing of their accounts following a fast-track online process.
Under the Companies Act 2006, private companies that are not traded companies are not obliged to hold AGMs. The Companies Act 2006 does not specify what business must be transacted at an AGM, nor are there any restrictions on business. Usually the meeting is used for matters which must be dealt with each financial year, such as the re-election of directors, fixing the remuneration of auditors and consideration of the annual accounts,directors’ report and auditors’ report (if auditors have been appointed).
However, some companies’ articles will require them to hold an AGM and any such provision will continue to be binding on the company until the articles are amended. In this case it is worth remembering that accounts must be sent to the members before the AGM. In this case a brief AGM may be held by phone, video-conferencing or by appointing proxies, if it is not desired to postpone the AGM.
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