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COVID and Insolvency: A Difficult Start to 2022 for D&Os

It has been a difficult start to the year for many D&Os. Data from the Insolvency Service released earlier this month confirmed that the number of companies entering a voluntary insolvency process has more than doubled in the first quarter of 2022 (a 112% increase) compared to the same period in 2021. This is the highest number of company voluntary liquidations since records began in 1960.

These stark numbers are perhaps unsurprising, especially when you consider the last protections against commercial tenant evictions were removed in March this year. Coupled with the fact that the suspended liability for wrongful trading ended last summer; businesses which have been forced to decide to wind up recently could be facing a bumpy resolution.

The best shield in a company’s armoury against a wrongful trading claim is effective Director’s and Officer’s (D&O) insurance. D&O is essentially a legal expenses cover to make sure directors can pay for the best possible legal team to put up the best possible defence against any claims they continued to trade when they ought to have known that the company would not avoid insolvency.

Read more about how D&O could protect you and your employees in my article from December 2021 here.

The future

Looking ahead, if you have recently liquidated your company but plan to phoenix with a different structure or do something completely new under your own steam, it is vital you are upfront about your insolvency experience with the insurers of your next venture.

A common reason for insurance claims being refused is a failure by the policyholder to disclose, when purchasing the policy, the prior involvement of a director in an insolvent business.

A recent case between Glasgow-based Ristorante Ltd t/a Bar Massimo and Zurich highlights the increasingly forensic approach insurers are taking in this area. The case in brief centred around the response to a question within the policy proposal form filled in by Bar Massimo. The insurer disputed their claim for fire damage at its premises and argued the business had failed to disclose information relating to the previous involvement of its directors in an insolvent business. In the end the court found in favour of the restaurant owing to the wording of the question but it serves as a sharp warning for directors to take care to ensure that their own directorship histories are fully disclosed when insuring any future endeavours.

You can read more details about this case in our article here.

If you’ve recently faced insolvency and are worried about any of the issues above please contact John Curran at for a free, no obligation discussion about how Indemnity Legal may be able to help.

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