Clampdown on directors dissolving companies to evade debts

The government is introducing new powers to clamp down on directors who dissolve companies to avoid paying their liabilities. Rogue directors may be required to pay compensation to creditors.

Carly Davies Debt Recovery Manager provides an update.

The new legislation extends the Insolvency Service’s powers to investigate and disqualify company directors who abuse the company dissolution process.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act will also help tackle directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic.

Business Secretary Kwasi Kwarteng said: “These new powers will curb those rogue directors who seek to avoid paying back their debts, including government loans provided to support businesses and save jobs.

“Government is committed to tackle those who seek to leave the British taxpayer out of pocket by abusing the Covid financial support that has been so vital to businesses.”

The Insolvency Service already has powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. It may also be instructed to investigate live companies where there is evidence of wrongdoing.

This Act extends those investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

The Business Secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

Stephen Pegge, Managing Director of UK Finance, said: “The ability to dissolve a company when necessary is a right reserved in legitimate circumstances where there are no outstanding creditors, however, it can be open to abuse.

“The banking and finance industry therefore supports this legislation which will provide much needed powers to the Insolvency Service to help hold rogue directors to account by providing additional deterrents and easier enforcement of the rules.”

If you would like more information about the update in this article please contact Carly on 01228 516666 or click here to send her an email.