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Investigations launched by The Insolvency Service into directors of insolvent companies for alleged misconduct rose by 36% from an average 142 cases per month in 2021 to an average of 193 per month between 1 April and 31 December 2022, according to RPC data.
The increase was partly driven by insolvency practitioners having identified more instances of fraud by directors in the reports they send to The Insolvency Service.
This comes as the number of cases referred to The Insolvency Service compliance and targeting department, which investigates corporate abuse, more than doubled from an average of 528 per month to 1,077 during 2022.
Insolvency practitioners have also been told to be on the lookout for any misuse of Covid support schemes such as Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), as in 2022/23 The Insolvency Service disqualified 459 directors for Covid support scheme abuse.
As higher interest rates contribute to an increase in insolvencies, directors of insolvent businesses are likely to come under scrutiny for suspected wrongdoing. This may include behaviour, such as continuing to trade whilst being insolvent and carrying on the business with the intent to defraud creditors.
Other examples of misconduct that The Insolvency Service looks for include misappropriation of assets, not paying taxes, and transactions at the detriment of creditors.
James Wickes, RPC partner in professional and financial risks London team, said: “With insolvencies on the rise, we can expect to see more instances of fraud and other types of misconduct coming to light.
“As directors of insolvent companies come under heightened scrutiny, D&O insurers will be anticipating an uptick in claims to cover the cost of investigations or penalties. Post insolvency actions against directors has historically been one of the main sources of claims on D&O policies.”
