Posted: 14 Jul, 2020
TMA UK, in association with Duff & Phelps and Kroll, a division of Duff & Phelps, hosted a webinar on 8th July where a panel of experts discussed the temporary suspension of the wrongful trading rules to remove the threat of directors incurring personal liability during Covid-19.
They also discussed the heightened risk of external threats faced by organisations, the impact of a successful attack and the remedial options available.
We thank David Grier for moderating this webinar which was attended by over 275 people and can be accessed in full here.
- David Grier - Managing Director, Global Restructuring Advisory, Duff & Phelps
- Rob Armstrong - Managing Director, Global Restructuring Advisory, Duff & Phelps
- Joanne Wright - Managing Director, Global Restructuring Advisory, Duff & Phelps
- Zoe Newman - Managing Director, Business Intelligence and Investigations, Kroll, a division of Duff & Phelps
- Ben Boorer - Associate Managing Director, Business Intelligence and Investigations, Kroll, a division of Duff & Phelps
Peter Stevens, TMA UK President, opened the event by thanking Duff & Phelps for hosting the webinar and David Grier introduced Rob Armstrong to begin by talking about the impact of the wrongful trading suspension.
Rob began by giving an overview of the temporary and permanent measures in the Corporate Insolvency and Governance Act, the purpose of which is to provide some support to directors and to alleviate some of the pressures that they’re currently under.
Speaking in detail about the suspension of wrongful trading, only in place from 1st March to 30th September, Rob said that while the suspension has alleviated personal liability for directors with respect to wrongful trading during the suspension period, there was initially a concern that the wording of the Act could leave this open to challenge. The Government has since made it clear that it is not open to challenge and so Rob isn’t expecting there to be any awards against directors under wrongful trading in the relevant period.
Importantly, however, Rob stressed that this doesn’t suspend the other provisions in the Insolvency Act, such as fraudulent trading, or the Company Directors Disqualification Act, and so doesn’t entirely take away directors’ personal liability.
Rob also drew attention to the fact that while the temporary suspension of wrongful trading provides some relief to directors, they must be mindful that when trading whilst insolvent, their duties switch from being to shareholders to being to creditors and they must act accordingly.
Overall, Rob said that directors should continue to act prudently and should be taking advice regarding the actions and decisions they take if they’re trading the company whilst it’s insolvent.
Following Rob’s conclusion, Joanne then looked at whether anything has really changed, given that the other checks and balances on a director’s conduct remain in force. She wondered what would happen if a director was part way through a well-formulated plan to trade through, that would temporarily worsen the creditor position, when the suspension is withdrawn on 30th September? For their own personal protection, should they cease to trade or is it too late?
In reality, Joanne thinks that at the end of the suspension period, directors will need to assess whether there’s a reasonable prospect of avoiding insolvent liquidation or administration and act accordingly.
And if a director is subject to a wrongful trading allegation, there is a defence. A director is not liable if they can demonstrate that they took every step to minimise loss to the company and its creditors. It is therefore paramount that in this period, directors continue to act responsibly and document all their actions.
Finally, Joanne took a look at where else there is potential for personal liability, and said that where insolvency threatens, directors need to be mindful that their duties switch to their creditors and that they should be careful not to make any preference or undervalue transactions prior to the company’s entry into administration or liquidation. In this case the court can not only unwind the transaction, but the director’s intentions can be challenged as a breach of their directors’ duties and they could be ordered to personally compensate the company.
Ben and Zoe then gave an overview of the external threats currently facing organisations.
Ben began by saying that cyber enabled crime is on the rise and fraudsters have been particularly successful during the pandemic due to the heavy reliance on email as a form of communication. He said that emails are the ‘weak point’ of a business’s security and attacks can range from the basic such as receiving a fraudulent ‘overdue fees email’ to the sophisticated where fraudsters will target an in-house finance professional by impersonating a C-suite colleague and ultimately lead the finance member of staff to make a payment which they believe to be legitimate business payment but instead goes to the fraudsters account.
Zoe continued by warning that fraudsters are targeting corporates particularly hard during Covid-19 because senior people are working from home and are not necessarily working within their usual governance structures.
Zoe also shared a real-life case her team worked on where fraudsters gathered information about a CFO of a foreign subsidiary from social media, identified that the CFO would be a vulnerable target and after several months of communication the CFO was ultimately persuaded into transferring over $100 million.
In cases as complex as these, Zoe’s Business Intelligence and Investigations team at Kroll are called in to recover the money which involves working alongside lawyers and often working with insolvency practitioners who have the power to access books and records, and the ability to seize assets and compel information from third parties with penalties for non-compliance.
To avoid falling victim to such an attack in the first place, Ben recommended looking out for notifications that say when an email is from outside the company and Zoe recommended, where possible, buying up similarly spelt domain names to prevent fraudsters from using them to dupe employees into thinking they had the same email address. When closing the webinar Peter also pointed out that dual control over payments prevents one person from having too much control.
Thank you to all the speakers for their time and to everyone who joined the webinar. The next TMA event will be a webinar in partnership with Quantuma to take place on 21st July with details of how to join here.
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