The Insolvency Service has had their powers extended to investigate and disqualify company directors who abuse the company dissolution process. The legislation will also help tackle directors dissolving companies to avoid paying their liabilities.
The Insolvency Service already has powers to investigate directors of companies that enter a form of insolvency, including administration and liquidation. These powers will be extended to enable live companies to be investigated where there is evidence of wrongdoing. If misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.
The new powers will help tackle directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the pandemic.
It should go some way towards dealing with “phoenixism” where directors of dissolved companies set up a near identical business after the dissolution, often leaving customers and other creditors, such as suppliers or HMRC, unpaid. This type of phoenixism is often associated with loan scheme promoters who operate for a period of time, subsequently liquidating when they suspect HMRC are closing in on them, and then reforming under a new name to continue the scheme unchallenged.
It will certainly be interesting to see the impact of the new legislation, let’s hope that unscrupulous directors will now be properly dealt with!