Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Insolvency definition

What does Insolvency mean? In practice, insolvency describes a financial state where a debtor cannot meet liabilities when due, triggering remedies such as administration, liquidation or bankruptcy and informing directors’ duties and avoidance claims. For companies in England & Wales, Scotland and Northern Ireland, the Insolvency Act 1986, s 123 sets two alternative tests: - Cash‑flow insolvency: an inability to pay debts as they fall due. The inquiry is practical and forward‑looking, not confined to today’s bills (Re Patrick & Lyon Ltd [1933] Ch 786; BNY Corporate Trustee Services Ltd v Eurosail [2013] UKSC 28). - Balance‑sheet insolvency: liabilities (including contingent and prospective liabilities) exceed assets on...

COVID-19: Temporary wrongful trading assumption under CIGA 2020—dates, scope, exclusions and implications for directors and disqualification risk

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

What is the background to the temporary changes to the Wrongful trading regime?

The coronavirus (COVID-19) outbreak, along with the lockdowns and social distancing measures mandated by the UK Government, has continued to inflict severe strain on numerous businesses and the wider economy.

When the first national lockdown was declared in March 2020, the Government rolled out a range of legislative and financial measures aimed at supporting businesses and keeping large areas of the private sector going. As part of this programme of reform, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) received Royal Assent on 25 June 2020.

For further guidance for restructuring and insolvency professionals, see: Coronavirus (COVID-19)—Restructuring & Insolvency—overview.

Directors of companies in financial distress face a host of practical and legal issues, including the possibility of personal liability. A major concern is exposure to wrongful trading claims under section 246ZB of the Insolvency Act 1986 (IA 1986) in the context of insolvent administration, and under IA 1986, section 214 in the context of insolvent liquidation. While English law does not create an offence of trading whilst insolvent, directors and shadow directors...

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Web page updated on 21/05/2026

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