The UK government has announced the addition of “new powers to tackle unfit directors who dissolve companies to avoid paying their liabilities.”

The change allows the Insolvency Service to investigate the potential misuse of the company dissolution process and to disqualify directors who are found to have abused the system.

The legislation – introduced under the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act – appears to be a direct response to the forecasted issues around the repayment of government-backed loans made available during the Covid-19 pandemic. The Act will “help tackle directors dissolving companies to avoid repaying” those loans.

Whereas previously, the Insolvency Service had the power to investigate company directors in cases of insolvency and (on the evidence of wrongdoing) active companies, these new powers will now “extend those investigatory powers to directors of dissolved companies”.

If misconduct is found, directors can face a range of sanctions, including:

• Disqualification from holding a directorship for up to 15 years.
• Prosecution (“in the most serious of cases”).
• An order to compensate creditors who were left out of pocket due to fraudulent practice.

Announcing the changes, 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 Act received Royal Assent of 15^th December 2021 and will apply to England, Scotland, Wales and Northern Ireland.

Get support from ESA Risk

If you have a limited company that you wish to close, we can introduce you to an insolvency practitioner, who will ensure the correct legal process is followed.

If you suspect that a fraud has occurred within your business and need advice or support on the next steps, we’re here to help.

Contact Mike Wright, Risk Management & Investigations Consultant, at mike.wright@esarisk.com, on +44 (0)843 515 8686 or via our contact form, to find out more.