Business secretary Alok Sharma will suspend wrongful trading laws to safeguard directors during the pandemic and allow firms to “emerge intact on the other side of the Covid-19 pandemic”.

He revealed the plans during the government’s daily coronavirus briefing on Saturday (28 March).

The move will allow directors of companies to pay staff and suppliers even if there are fears the company could become insolvent and give businesses more time to pay off debts while continuing to trade.

Wrongful trading was introduced in 1986 and makes it an offence for a director to continue to trade if they know their business is unable to avoid going into liquidation.

Introduced retrospectively from 1 March for three months, company directors will now be able to keep their businesses going without the threat of personal liability.

Sharma said “all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force”.

“Our overriding objective is to help UK companies that need to undergo a financial rescue or restructuring process to keep trading,” he said.

“These measures will give those firms extra time and space to weather the storm and be ready when the crisis ends, whilst ensuring creditors get the best return possible in the circumstances.

Sharma added: “The government is doing everything in its power to save lives and protect livelihoods during these unprecedented times.

“Applying a common-sense approach to regulation will ensure products are safe and reach the market without any unnecessary delay, getting vital protective equipment such as face masks to frontline staff as quickly as possible.

“Today’s measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”