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New powers to tackle bosses who abuse wind up rules

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New rules are being introduced to prevent business directors from misusing the dissolution process in order to avoid paying creditors or the taxman.

The Insolvency Service is being given new powers to investigate directors of companies that have been wound up. Currently, it can investigate directors of active companies, or those entering a form of insolvency, but these are now being expanded. 

As a result the Insolvency Service will be able to tackle directors who have inappropriately wound up companies that benefited from the Bounce Back Loans introduced to support companies during the pandemic.

Abusing the rules

Previously, some directors have closed their businesses in order to avoid paying money to people they owe. This could include members of staff or suppliers, while dissolution also means that certain loans are not paid and tax bills are written off.

They then set up a virtually identical new business, having sidestepped the payments they should have made.

If directors are found indulged in wrongdoing or malpractice around the dissolution of a business, they can face sanctions including a ban from acting as a company director for up to 15 years.

Kwasi Kwarteng, the business secretary, said that it was important to restore people’s confidence in business, so the government would not hesitate to disqualify directors who deliberately leave employees and taxpayers out of pocket.

He continued: “We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

Dr Roger Barker, director of policy and corporate governance at the Institute of Directors, added that while corporate dissolution may be inevitable in some cases, it should only be as a last resort.

Bounce Back Loan fraud

Bounce Back Loans were an enormously popular part of the government’s Covid-19 support, with loans worth nearly £2bn agreed on the first day of the scheme alone.

However, there are clear concerns that the scheme has been abused by fraudsters due to the lack of checks carried out on borrowers. The National Audit Office has warned that taxpayers may lose up to £26bn on unpaid loans handed to fraudsters and businesses that are incapable of repaying them.

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