New Insolvency Service Powers To Tackle “Phoenixism”

The Insolvency Service will be given powers to investigate directors of companies that have been dissolved, closing a legal loophole of fraudulently avoiding repayment of Government backed loans given to businesses to support them during the COVID-19 pandemic.

Improved powers and greater sanctions against unscrupulous directors has been on the Insolvency Service agenda for years, so this development is very welcome news.

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.  This type of “pheonixism” is often associated with disguised remuneration 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.

Notably the legislation will enable the Insolvency Service to investigate directors of companies dissolved within the last 3 years, so any recently liquidated companies could find themselves challenged if they had creditors who remain unpaid.

These changes were prioritised now in order to tackle coronavirus fraud but let’s see them used far & wide!

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