Directors who dissolve companies and leave creditors “out of pocket” may be disqualified for up to 15 years under new measures that were part of a bill put before Parliament on Wednesday, 12 May 2021.
Under current rules, the regulator only has powers to investigate directors of live companies or those entering insolvency. According to the Government, the Insolvency Service will be given extended powers to investigate directors of companies that have been dissolved – closing a “legal loophole”.
The new powers mean that a director could be disqualified from running any other company for up to 15 years if wrongdoing or malpractice is found, even if the business has been removed from the official register of companies.
This also prevents directors of dissolved companies from setting up a near identical business after the dissolution to the detriment of customers, creditors and the public purse.
The Government said the new measures will act as a “strong deterrent” against the misuse of the dissolution process – which has been used in recent months as a “method of fraudulently avoiding repayment of Government backed loans given to businesses to support them during the Coronavirus pandemic”.
Commenting on the new rules, Business Secretary Kwasi Kwarteng said: “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: “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.”