The Insolvency Service will be given new powers to investigate directors of companies that have been dissolved, in a bid to close a legal loophole and act as a “strong deterrent” against the misuse of the dissolution process.
The process will no longer be able to be used as a method of fraudulently avoiding repayment of Government backed loans given to businesses to support them during the pandemic
Extension of its power to investigate also includes relevant sanctions, such as the disqualification from acting as a company director for up to 15 years.
At present, the Insolvency Service has powers to investigate directors of live companies or those entering a form of insolvency, and if wrongdoing or malpractice is found, directors can face sanctions including a ban of up to 15 years.
The measure will also help to prevent directors of dissolved companies from setting up a “near identical” business after the dissolution, often leaving 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 and will enable the Insolvency Service to also tackle Directors who have “inappropriately” wound-up companies that have benefited from Bounce Back Loans.
Business secretary Kwasi Kwarteng said: “As we build back better from the pandemic, we need to restore business confidence, but also people’s confidence in business – which is why we will not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket.
“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, said: “Company directors fulfil a central role in ensuring that their businesses are well governed.
“Although corporate dissolution may be inevitable in some cases, it should only be used as a last resort – after all other realistic avenues for protecting the interests of stakeholders have been exhausted. Using company dissolution as a mechanism for the evasion of a directors’ duties has no place in the governance of a responsible enterprise.”