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Crackdown on dodgy company directors

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Written by: Emma Lunn
16/12/2021
The Insolvency Service is clamping down on rogue directors who dissolve their companies to avoid paying liabilities to staff, creditors and the taxpayer.

New legislation extends the Insolvency Service’s powers to investigate and disqualify company directors who abuse the company dissolution process. Unfit directors who shutdown companies to avoid paying what they owe can now be disqualified from being a director.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act will also help tackle directors dissolving companies to avoid repaying government-backed loans put in place to support businesses during the Coronavirus pandemic.

Kwasi Kwarteng, business secretary, said: “We want the UK to be the best place in the world to do business and we have provided unprecedented support to businesses to help them through the pandemic.

“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 Insolvency Service has powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. The Insolvency Service may also be instructed to investigate live companies where there is evidence of wrongdoing.

This act extends those investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

The business secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

The act also rules out Covid-19-related changes as grounds for material change of circumstances (MCC) business rate appeals. This is due to the fact that market-wide economic changes to property values, such as from Covid-19, can only be properly considered at general rates revaluations.

Stephen Pegge, managing director of UK Finance, said: “The ability to dissolve a company when necessary is a right reserved in legitimate circumstances where there are no outstanding creditors, however, it can be open to abuse.

“The banking and finance industry therefore supports this legislation which will provide much needed powers to the Insolvency Service to help hold rogue directors to account by providing additional deterrents and easier enforcement of the rules.”

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