Directors beware – dissolving a company will not absolve you of liability
Under new legislation, the Insolvency Service will receive enhanced powers to investigate and impose sanctions on directors of dissolved companies.
The measures, which are part of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (the Bill), are intended to address concerns that the corporate dissolution process is being exploited to avoid repayment of Government-backed loans granted to businesses during the coronavirus pandemic.
The Bill had its first reading in the House of Commons on 12 May 2021 and will amend certain sections of the Company Directors Disqualification Act 1986. Amongst other things, the Bill:
- Extends the court's powers to disqualify unfit directors of insolvent companies to include former directors of dissolved companies. Any application by the Secretary of State for a disqualification order in respect of a former director of a dissolved company must be made within three years of the date of the company's dissolution.
- Gives the Secretary of State and the Official Receiver enhanced investigatory powers, so that they will be able to require any person to provide such information, books and records relating to the conduct of former directors of dissolved companies, as they reasonably require.
- Extends the scope of compensation orders so that they may also be made against former directors of dissolved companies, where the directors' conduct has caused loss to one or more creditors.
The Bill once in force will have retrospective effect, so that directors' conduct in relation to companies that were dissolved before the new measures commence, may be investigated.
As the UK continues on the roadmap out of lockdown, it is clear that pursuit of directors who have, whether inadvertently or otherwise, misapplied Government loans, is going to be a focus for the Insolvency Service in the coming months. Directors who have any concerns in this regard should seek advice and take appropriate measures now, rather than wait and run the risk of incurring sanctions.