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Labour warns government against letting company insolvencies ‘snowball before Christmas’

SHADOW business secretary Ed Miliband has urged the government to extend the suspension of “wrongful trading” rules for company directors or risk seeing a flood of businesses closing before Christmas.

The government’s ending of temporary protection for business owners means they face legal action if they are struggling to stay afloat through the crisis but don’t cease trading, Labour has warned.

Protections against insolvency for businesses have been renewed until December 31, but the suspension of a related rule – the wrongful-trading standard, which requires business directors to cease trading if their company is facing insolvency – has not been renewed and ended on September 30. 

This means that company directors could now face financial or legal action if their business is in difficulty during the coronavirus crisis but they do not cease trading.

The number of company insolvencies in September was a third lower than it was last year, which the government suggests is “partly driven by measures put in place in response to the coronavirus pandemic.”

Labour agrees that the measures have been working, but stresses that more insolvencies are likely if they are removed while the crisis continues, and Mr Miliband has called for the re-suspension of  the wrongful-trading standard until the end of the year. 

He said: “Ministers claim to want to protect struggling businesses, but the decision to remove this key protection for business owners flies in the face of that claim.

“They must urgently change course or the risk is that we see insolvencies snowball before Christmas.”

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