Rishi Sunak’s help for business puts directors at risk of fraudulent and wrongful trading
Listening to the BBC and reading newspapers (at least those not behind a paywall) it’s difficult to make out quite what Rishi Sumak’s announcements mean, or what help they may be, particularly to smaller businesses.
There seem to be promises of some modest grants, which will be welcome. They should be of some help, but they are unlikely to be enough on their own.
Then there seems to be talk of giving loan guarantees. Presumably these will be in relation to existing loans, mainly one assumes in relation to bank debt.
And finally there is talk also of new loans being made to businesses to help them through.
The problem, which directors face with loan guarantees and with further loans is that they may not really help, and, worse, to accept them may in many cases be illegal.
Directors of any companies thinking of taking advantage of any of them will need to be very careful that they are not engaging in fraudulent or wrongful trading. To do so could among other matters mean they become personally responsible for the debts of the company.
The difficulty in many cases will be that while guarantees and further loans might stave off immediate failure, unless a company has a reasonable prospect of paying off those debts it will still likely to meet the definition insolvency, and, if this is the case, directors should not be continuing to trade in these circumstances.
Unfortunately this doesn’t appear to have been entirely thought through, and those running companies will need rather more than this, if they are to survive.