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At the moment, the Insolvency Service has the power to investigate directors of live companies and those entering into a form of insolvency. Directors can face sanctions, including a ban from acting as a director for up to 15 years. There is no such power to investigate and take action against the directors of a company that is dissolved, whether as a result of a voluntary striking off or a compulsory striking off. A voluntary striking off is currently a quick, cheap and convenient process for a non-trading company that is no longer required and was used by 171,169 companies between January and March 2021.
The improper dissolution of a company is already a criminal offence, punishable with a fine, under sections 1104 and 1005 of the Companies Act 2006.However, in its Impact Assessment in 2020 the Insolvency Service highlighted that there is currently no power for the Insolvency Service to investigate and address abuse of the dissolution procedure by directors without restoration of the company to the register, which is a cumbersome and costly process involving court proceedings. The Insolvency Service said that rogue directors know that they can avoid scrutiny and potential enforcement action by dissolving their company.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill is designed to make provision in connection with the disqualification of directors of companies that are dissolved without becoming insolvent. By amending the Company Directors Disqualification Act 1986, the Bill, if passed, would plug a gap in the legislation and mean that if a court is satisfied that a director’s conduct makes them unfit to be concerned in the management of a company it would have a duty to make a disqualification order. Once made, the order bans that person from acting as a director or taking part in the management of a company for up to 15 years. The Bill includes a power to require the provision of information or documentation relating to the conduct of a former director of a dissolved company. Compensation may be sought where a former director’s conduct in that company has caused losses to creditors.
The measures included in the Bill are retrospective and will enable the Insolvency Service to investigate Directors who have inappropriately dissolved companies that have benefitted from bounce back loans. In the 2021 Budget the Government said that it will enforce and address bounce back loan fraud. This is one measure to enable this policy aim to be achieved.
July 5, 2021
Hilary is a Solicitor and Partner in our Commercial Dispute Resolution team.