Closing the Loopholes to Tackle Unfit Directors of Dissolved Companies

Under the new legislation, the Insolvency Service will be given powers to investigate directors of companies that have been dissolved. This will close a legal loophole and act as a strong deterrent against the misuse of the dissolution process. Something that is far too common and used by Directors to avoid repaying government-backed loans that were given as a means to support businesses during the Covid 19 Pandemic.

Now, there are significant consequences for trying to use this former loophole. Extension of the power to investigate now includes relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the business secretary.

At present, the Insolvency Service has powers to investigate directors of live companies or those entering a form of insolvency. If wrongdoing or malpractice is found, the guilty directors can face sanctions, including a ban of up to 15 years from taking the position of director in another company.

The measure will also help prevent directors of dissolved companies from setting up a near-identical business after the dissolution. This can often leave customers and other creditors, such as suppliers or HMRC, unpaid.

The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective. They will enable the Insolvency Service to also tackle directors who have inappropriately wound up companies that have benefited from Coronavirus Bounce Back Loans. These loans were issued in good faith to help maintain the economy and ensure that as few companies as possible close due to the unforeseen consequences of The Pandemic.

This Bill also clarifies the commitment to rule out Covid-19 related material change of circumstances (MCC) business rate appeals. This is because market-wide economic changes to property values, such as from Covid-19, can only be considered adequately at general rates revaluations.

The government provides £1.5bn to sectors that have suffered the most economically over the pandemic to support this. This is to ensure support is offered to businesses in England in the fastest and fairest way possible. Allowing business rates appeals based on a ‘material change in circumstances’ could have led to significant amounts of taxpayer support going to businesses who have been able to generally operate throughout the pandemic and disproportionately benefitting particular regions like London.

The directors’ disqualification measure implements a policy first announced in August 2018. The government announced it would be implemented when parliamentary time allowed and was introduced on 12 May in part to deliver on measures to combat Bounce Back Loan fraud as announced in Budget 2021.

Dissolving a business should not be done lightly, and the Bill will help prevent people from unfairly profiting from Director wrongdoing. Dissolving a company can be complicated and expensive, so why not let us guide you? To find out more, visit our website on https://www.silverinsolvencysolutions.co.uk or email us at enquires@silverinsolvencysolutions.co.uk or give us a call on 0303 961 7169.