The Government has recently announced measures to prevent directors from incurring personal liability from wrongful trading during the COVID-19 outbreak. On the face of it, directors will be able to continue to trade with impunity but this article explains that this may not be the case.
Following the announcement of the income support measures, the Government has clarified that directors whose remuneration is subject to PAYE (as opposed to remuneration being drawn by a self-employed director) may be furloughed under the newly-announced Coronavirus Job Retention Scheme. But what does that really mean?
In the past few weeks we have seen coronavirus spread throughout the UK wreaking havoc on businesses in its wake. Staff have been forced into lockdown, furloughed or required to work from home. Transport has been interrupted and supplies that we would usually take for granted, have been restricted. So, were you ready?
With the involuntary closure of many businesses forced by the UK wide lockdown, previously successful companies are beginning to feel the strain, becoming more and more concerned with the future viability of their businesses.
Following Royal Assent of the Finance Bill 2019/20, directors, LLP members, shadow directors and other persons involved in a Company’s, or an LLP’s, tax avoidance, evasion or repeated non-payment of taxes/phoenixism will be jointly and severally liable for the business’s outstanding tax liabilities if the business becomes insolvent or potentially insolvent.
The majority of businesses operate a director’s loan account (“DLA”) to enable a director to extract credit from the Company which is not a problem during the normal trading of a solvent Company. DLAs can also be used to allocate expenditure by the Company for the benefit of directors and vice versa.
When directors are facing the distress of placing their company into an insolvency procedure it seems ludicrous to then insist upon payment for the service. Cash flow is difficult, business assets are no longer at your disposal, and the interests of creditors is paramount. But there is a method of voluntarily liquidating an insolvent company, essentially for free, if you meet the qualifying conditions.
Crown preference for most taxes was abolished in 2003 following the introduction of the Enterprise Act because it was considered to be unfair to other creditors.