The Insolvency Services has used its new powers – granted in legislation introduced on 15th December last year – to disqualify directors who dissolved their companies to avoid repaying debts.
Four directors were banned for periods ranging from seven to twelve years following Insolvency Service investigations which were only made possible by the new law.
Previously, the Insolvency Service had the power to investigate company directors in cases of insolvency and (on the evidence of wrongdoing) active companies, but not directors of dissolved companies. This loophole was closed at the end of 2021 and the new powers have been put into action in relation to the Bounce Back Loan Scheme – the current hot topic in insolvency and, in particular, director disqualifications.
“We have been clear that we will not tolerate those who seek to defraud the taxpayer, which is why we introduced tough new powers which have allowed the Insolvency Service to disqualify directors for dissolving their companies, to avoid repaying their bounce back loans”, Business Minister Lord Callanan said about these cases.
All four directors misused their loans by either transferring funds to themselves or by making payments not connected to their companies.
Lewis Wright, who ran a management consultancy company from September 2018 until its dissolution in October 2020, received the longest ban at twelve years. (The maximum disqualification period is fifteen years.) As well as paying himself more than £47,000 of the loan monies, Wright inflated turnover figures in order to obtain the maximum loan value – all of this “despite his company having stopped trading the previous year .”
Max Hadley and Sirfaz Ahmad both received ten-year disqualifications. Hadley, sole director of Prestige Building Works Ltd, took out a £20,000 loan and spent “£18,000 on payments not connected to the…firm”. His plumbing business was active for less than a year before Hadley applied to strike the company off the register.
Leeds-based Ahmad “squandered £25,000 to repay family members” after falsely inflating Food Box Leeds Limited’s turnover to obtain a Bounce Back Loan at a value higher than he was entitled to.
Jake Joynt, also from West Yorkshire, was given a seven-year ban. He secured a £15,000 loan under the scheme through his company Joynt Electrical Limited “before spending £13,000 of it for personal use.”
Announcing the changes to the law last year, 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.” Given the nature of the misconduct of the first set of directors to be investigated using the new powers, the Business Secretary’s comment appears to point to a wider strategy to tackle those who abused Covid support schemes and, potentially, to recover funds.
This latest press release from the Insolvency Service notes that they are “considering recovery of the bounce back loan funds by using legal powers to seek Compensation Orders against the directors where appropriate.”
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