HomeFWJ TakeawayCompany rescueBusiness recovery and rescueCOVID-19 – risks still remain for directors as pandemic fades

This is the first of a series of blog posts discussing ‘what happens next’ as business begins to restart.

As most of the protections introduced by the Coronavirus Insolvency and Corporate Governance Act 2020 (“CIGA”) begin to fade away from 30 September 2021, directors must be aware, not only of the business opportunities out there but of the risks to directors personally.

Almost every industry has suffered (even us lawyers) and, as of writing, an increasing number of businesses are facing difficulties arising from:

  • a departure of staff occurring during the lockdown (and as a result of Brexit, which no doubt has been exacerbated by the stay-at-home message);
  • supply line difficulties – setting out why the economics of minimal stock retention is not so wise when there is an international crisis;
  • as a result, supply chain disruption with different parts of business supplies having varied levels of capacity and therefore interference with the end product or service;
  • the impact on small businesses, especially those who service office workers which may have a more drastic effect for longer as businesses adopt a more comprehensive work from home policy.

As of writing this article, the Press is covering the lack of CO2 and the impact on the farming and food packaging industry, as well as the increasing cost of gas as the world seeks to return to normal.

The world will of course return to normal, with different approaches to how we do business and conversely (as a result of the pandemic) the economy is reported to have “techcelarated” to 2025 in terms of medical and general technological advances during this period.

So, with such flexibility and adaptive qualities, companies (and especially small companies) appear to have protected our future. But is the future as rosy for directors personally?

With CBILs, bounce back loans, furlough and Eat Out to Help Out leading to huge amounts of (allegedly) false claims for grants and loans, HMRC is investing significant resources in pursuing the companies benefitting from such lifelines handed out during the pandemic.

Among the typical types of claim we are starting to see (and this is only the tip of the iceberg) are those alleging misconduct relating to:

  • directors taking out bounce back loans for “improper” purposes, including paying the wrong creditor or a disagreement as to what is a business cost;
  • freezing orders for the misuse of furlough payments;
  • dissolving companies to avoid repayments of loans;
  • overclaiming numbers of restaurant visits; and
  • transferring employees to a new company, which then applied for furlough using different director names.

Not all businesses will survive the next few years – some will not be able to maintain both the loan repayments and the trading costs following the restart (a common problem with Company Voluntary Arrangements), some will decide early to restructure and buy back the business and others will already have planned the winding down or dissolution of their business/company.

Legislation is going through Parliament (as of writing) to deal with a lot of these risks and to ensure that directors personally pay back the losses to HMRC.  With great power comes great responsibility….

In my next blog I propose to go into more detail as regards the specific risks directors face as a result of their misconduct.

If you would like to read about directors and their conduct with bounce back loans specifically, read our guide on director disqualification and bounce back loans.

“One of the most astute appointments I have ever made.”

A company director we successfully defended against disqualification

Should you require any assistance relating to director accountability, contact our director services team. Whatever your situation, we have almost certainly seen it before and our experience can help you find the solution you need.

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