Investigations to take place for unfit directors of dissolved companies

The Government has recently announced that the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (the “Bill”) will provide the Insolvency Service with greater powers to enable them to investigate directors of a dissolved company. This is a significant change from the status quo which only enables the Insolvency Service to investigate directors of live companies or those that are entering into a form of insolvency.

The Bill will close a legal loophole and act as a deterrent against the misuse of the dissolution process. The key features and aims of the Bill include:

—  The Insolvency Service’s powers will be retrospective – this is an important feature to allow the Government an opportunity to take action against directors that benefitted from Bounce Back Loans during the pandemic and then used the dissolution process to avoid repaying them.

—  Directors may be encouraged to take a more formal route, such as liquidation, in view of the risk of potential investigation at an unknown point in the future.

—  It may also help where a company with employees ceases and is dissolved – particularly helping with issues relating to proper notice and redundancy pay.

—  The extension of power will include relevant sanctions such as disqualification from acting as a company director for up to 15 years. This will help prevent directors of dissolved companies from setting up a new, near-identical business after the dissolution which often leaves customers, creditors or HMRC unpaid.

Insolvent businesses are therefore encouraged to take advice on their position and the options open to them sooner rather than later.