Investigating Directors Of Dissolved Companies.
The Government has extended efforts to prevent fraud, in part, stemming from Covid-19 relief programmes. The most significant consequence for company directors is the expanded powers of the Insolvency Service.
Previously, the Insolvency service has not been able to pursue directors of dissolved companies. So they were not able to take action against directors abusing the process of dissolution by, for example avoiding paying creditors. It is important to know now that this has changed.
Many company directors struggling to pay back loans following the pandemic and the support schemes surrounding it. Now even when your company is non-longer a legal entity, you can still be held accountable for malpractice.
If an investigation determines that you acted improperly you could face a ban from directorship for up to 15 years. Previously this was a punishment that could only be applied to directors of companies that were live or entering insolvency. That is no longer the case.
Why have the measures been introduced now?
The pandemic has seen government support for businesses expand significantly. As support is scaled back and loans approach their first repayment deadline directors who are unable or unwilling to repay could previously have used insolvency to avoid these debts.
As a company director you may be tempted to declare your company insolvent and begin a new one free of debt, a practice commonly referred to as “phoenixism”. Historically this may have worked. Given the large number of insolvencies caused by the events of the last 18 months, your activities may not have received adequate scrutiny, as the Insolvency service struggled to keep up.
These new reforms mean malfeasance can be investigated after the company has been closed, and that you will likely be caught if any improper activity has occurred before or during the process of insolvency.
Ensuring repayment of coronavirus support loans if a top priority for the government and they have pinpointed this gap in the insolvency service’s powers as one of the ways to do so.
What does this mean for you as a director?
Directors need to be mindful of their obligations. Following the introduction of this legislation, this is more true now than ever. If the deadline for repaying your Covid related loans is approaching you may be advised to avoid the problem by initiating insolvency and starting again. This may not be the best course of action for you.
If you’re a director in this situation we can provide expert advice on your best course of action. Do not proceed without expert advice. A Misstep can prove extremely detrimental to the prospects of your business and you personally as a business owner.