The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

Alongside many of the economic stimulus measures and financial reprieves announced during the Coronavirus pandemic, the UK government has also introduced temporary measures relating to corporate insolvency.

The rules about winding up businesses are set out in The Corporate Insolvency and Governance Act 2020, which came into force in June.

In September, as it became clear that regular trading was not about to resume any time soon, the government extended the Act’s measures.

While the original Act was due to end in December 2020, it has now been extended further. Some of the rules are in place until March, and some until April 2021.

The Law Firm Group receives regular enquiries from struggling businesses that have been severely impacted by lockdowns and the pandemic crisis. As such, it is no surprise that insolvency proceedings and redundancies have been on the rise – and these measures are intended to support companies dealing with these unique pressures.

Here we’ll look a little closer at the Act, what it means, and what you as a UK business owner need to know.

How Long Have Wrongful Trading Liabilities Been Suspended For?

Wrongful trading is a serious scenario, and one of the common situations is where a director knows a business to be insolvent, and yet allows it to continue trading.

The issue here is that by failing to declare insolvency, the company is likely to take out credit it does not intend to repay, increasing potential losses suffered by creditors, and the directors fail to fulfil their fiduciary duty towards the shareholders.

However, in light of the tremendously difficult business climate caused by the pandemic, the government decided to suspend wrongful trading measures.

  • Initially, these measures came until effect until 30th September 2020.
  • While the measures have not been extended as such, a new suspension has been introduced from 26th November 2020 until 30th April 2021.

This does not mean that a company should continue trading under any circumstances. Directors could still be subject to legal scrutiny if they willfully allow reckless trading, and know they have no opportunity to recover a profitable position.

What it is intended to do is avoid unnecessary pressures, with UK businesses dealing with multiple issues:

  • Rent arrears and VAT deferrals.
  • The challenge of forecasting trading in such an uncertain environment.
  • Difficulty in securing affordable lending.
  • Time delays in receipt of discretionary grant funding.
  • Uncertainty about the end of the furlough scheme and recalling staff.
  • Concerns about potential breaches of financial covenants.

In short, provided they have done everything possible to uphold their statutory duties, a director will not be investigated on the grounds of wrongful trading during this suspension period.

You should note that the usual investigations in an insolvency scenario remain, as well repercussions for fraudulent trading.

Additionally, the suspension is NOT retrospective and therefore does not offer any exemptions from the Insolvency Act 1986 for actions taking place between 1st October and 25th November 2020.

What Other Changes Have Been Introduced That Impact Company Trading?

The focus of the suspension to wrongful trading is intended to help business owners focus all of their time, resources and efforts on continuing to trade.

If a business would be temporarily considered insolvent due to trading restrictions, and yet has the opportunity to resume regular business when lockdowns cease, and therefore bring their liabilities up to date, there is less chance of employee redundancies and business closures.

Alongside this, there is a range of other short-term rules:

  • Companies registered at Companies House have extensions to filing deadlines. These are offered automatically and do not have to be applied for. There have also been several extensions to payment deadlines and filing dates against corporate liabilities.
  • Businesses may hold virtual meetings, such as AGMs, to allow voting and decision-making to continue, when a physical meeting is not permitted, or advisable under safety guidelines. This measure was extended to 30th December 2020 and since extended further to 31st March 2021.
  • Creditors may not petition the winding-up of a business under statutory measures during this exemption period. They can only raise such a petition if they have reason to believe that the company has not been affected financially by Coronavirus, or would be unable to pay their debts even if the virus had not had any effect.
  • Exemptions to wrongful trading mean that businesses can continue their operations until March 2021. This moratorium period is intended to give them time to resolve financial issues without the threat of creditors’ enforcement action.
  • Landlords of privately rented commercial premises are prohibited from repossessing properties. This measure also runs until March 2021, and so a company cannot be evicted in this period per The Business Tenancies Regulations 2020.

While this package of measures is welcome news for many British businesses, it remains crucial to take action and consider a recovery strategy if you are facing potential insolvency.

There are several grant schemes and funding options, depending on your business’s size and sector. You can also access help with covering employee costs to retain staff and avoid redundancy scenarios that might be resolved when trading can resume.

Suppose you are concerned about your trading position. In that case, it’s also still important to consider your risk exposure as a director or business owner, and whether you can take steps to mitigate any exposure.

For example:

  • Convening board meetings to discuss whether ongoing trading is financially viable. Ensure all such discussions are minuted and recorded.
  • Make concerted efforts to draw up meaningful financial forecasts, even where so many factors may yet be uncertain.
  • Keep in contact with creditors and discuss repayment plans or schedules to reduce the debt amount.
  • Plan for contingencies, should insolvency become an unfortunate reality.

As a full spectrum legal practice, The Law Firm Group can provide professional support with your insolvency strategy or plan to resume profitable trading.

Our teams specialise in every facet of company law, from restructuring to maximise your business’s value for sale, to capitalising on any market opportunities that might restore your position.

We also offer solicitors with experience in commercial property, should you be facing a challenge around privately leased premises, and independent legal guidance through commercial borrowing processes.

If you’re unsure what support would be beneficial, but know that your business would benefit from an expert listening ear, do get in touch. We’ll work through your key challenges and business risks to draw up a future-proof strategy for recovery.

Call or email us to talk about it. 0300 303 3805

Guide to GDPR Compliant Client Data Storage for SMEs

Guide to GDPR Compliant Client Data Storage for SMEs

Guide to GDPR Compliant Client Data Storage for SMEs

The GDPR (General Data Protection Regulation) came into force in May 2018, as the new European framework.

In the nearly three years since UK businesses have adapted to GDPR and data protection compliance is now a core part of business trading.

As we embark on a new trading year, still in the throes of the Coronavirus pandemic and with Brexit now a done deal, what does that mean for the GDPR – and what do British businesses need to know about safeguarding their customers’ data?

This article will summarise how UK data protection laws will change post-Brexit and what you need to do to remain compliant with the relevant legislation.

Does GDPR Still Apply to British Businesses After Brexit?

The answer is – yes, and no!

If UK companies want to trade with the EU or sell their products or services to European customers, then yes, GDPR is still essential.

The regulation is extraterritorial, which means that GDPR has an impact outside of the EU jurisdiction. For example, any company that trades internationally will need to be GDPR compliant to avoid potentially disastrous fines.

On the other hand, smaller businesses that trade exclusively within Britain’s confines will still need to think about data protection.

Relevant UK laws include:

  • The Data Protection Act 2018 (DPA).
  • The UK General Data Protection Regulation (GDPR).

Primarily, not a lot will change, since the DPA already covers all of the EU GDPR legislation requirements to bring it into UK law.

There isn’t a great deal of difference between the EU and UK GDPR either.

The Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 set out amendments to the 2018 DPA, and merge it with European GDPR to create a data protection ruling that dictates how the UK manages data protection outside of Europe.

In a nutshell, if you have GDPR processes already in place, they remain relevant and crucial if any of your trading activities involve processing personal data.

What Do I Need to Do To Stay EU GDPR Compliant?

If you wish to continue selling your goods to European customers, you’ll need to revisit your GDPR systems to ensure you remain compliant. This applies to any transactions or activities from 1st January 2021.

The required steps include:

  • Appointing a representative in the EU. They act as a local representative and a contact for the authorities.
  • Identify the lead supervisory authority in the EU who will oversee your compliance.
  • Revisit your contracts and documentation where data transfers are mentioned. It’s important to note that, as a country outside of the EU, the UK is a ‘third country’.
  • Update your organisational policies and procedures to reflect these new points of contact, data controllers and systems.

While this might sound like a lot of work, it is vital to clarify whether you require ongoing European data protection safeguards.

The penalties for non-compliance can be exceptionally steep. As a third country business, if you trade with the EU or sell products to European customers and fail to meet GDPR requirements, you could be fined the greater of 4% of your annual turnover, or €20 million.

If you have any concerns about GDPR, whether you need to change any of your practises, or what it means for your business, do get in touch with The Law Firm Group.

Our business law teams will be more than happy to have a confidential discussion and recommend the best courses of action.

Can I Still Keep a Paper Filing System and be DPA Compliant?

A challenge for many smaller businesses is that, where filing systems are managed manually with paper-based records, they need to establish whether that client data storage falls under the scope of data protection.

The classification of a ‘relevant filing system’ is important, since it determines what regulatory procedures and compliance guidelines apply.

Under the DPA 2018, a relevant filing system is defined as:

  • Sets of information not held electronically.
  • Data that is structured in a way that is readily accessible and relatable to the individuals.

Therefore, it isn’t necessarily clear-cut. The best way to determine whether you are required to implement changes in adherence with the relevant data protection laws is to consult an experienced legal professional. We can consult with you, assess the systems you have in place, and make recommendations tailored to your business.

In general, the rule of thumb decided on in previous court cases, via the European Courts, Court of Appeal and Information Commissioner’s Office have made case-by-case decisions, based on the ‘temp test’.

This test uses the scenario of a temporary worker. Suppose such a temp could find information about an individual customer from a paper filing system without having any prior knowledge about the documentation or the storage mechanism, then yes. In that case, data protection applies, and the records are a relevant filing system.

Should they need instructions about terminology or how client records are kept from a more senior member of staff, then the personal data is not readily accessible, or structured so that a person without prior knowledge would be able to access it.

What Do I Need to Do To Comply With the Data Protection Regulation 2018?

If you have been through a GDPR compliance exercise, risk assessed the business activities and analysed how you access, process, store and disseminate customer data; you are probably already compliant.

However, it is never a bad thing to revisit your data protection processes. The UK’s departure from the EU and the knock-on impact on the relevant legislation is as good a time as any to ensure you have the right processes in place.

You can revisit the DPA 2018 guidelines and GDPR rules via the guide published by the Information Commissioner’s Office (ICO).

The Data Protection Act covers seven core areas:

  • Accuracy of data you store or record.
  • Limitations on how much data is stored.
  • Identifying limited purposes for which data may be kept.
  • Security of records and client data.
  • Accountability for your systems and the safety of data.
  • Minimising the data that is crucial to collect.
  • The legality, parity and transparency applied to data processing.

In short, you can only collect and store data that is crucial to delivering the service to your customer. Businesses must only keep data for a defined purpose and must allow their clients access to the information held about them, including the opportunity to delete all such records.

For any help with assessing the robustness of your data protection strategies, or identifying whether amendments are required to remain compliant with EU laws past Brexit, do get in touch with The Law Firm Group!

Call or email us to talk about it. 0300 303 3805

Appointments Now Available in Our Tunbridge Wells Office