On 15 December 2021, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act received royal assent. This new legislation grants the Insolvency Service additional powers to challenge unfit directors who dissolve companies to avoid paying their liabilities, including repaying Government backed loans granted during the Coronavirus pandemic.
It has been estimated that £4.9 billion borrowed under the Bounce Back Loan scheme was obtained through fraudulent means. This potential loss has attracted a lot of media attention and there has been calls for the Government to do more in penalising those who have committed offences. The new powers will assist the Insolvency Service in cracking down on those they find to have acted in a fraudulent manner.
Previously, the Insolvency Service had powers to investigate directors of companies entering insolvency, including liquidation and administration. It also has the power to investigate live companies where there are suspicions of wrongdoing.
Under the new powers, the Insolvency Service has retained its previous powers but a loophole has been closed, meaning that the Insolvency Service can now investigate directors of dissolved companies. It is hoped that the new powers will prevent directors setting up phoenix companies. The powers will apply retrospectively, meaning that the directors of companies dissolved prior to December 2021 can still be investigated and face punishment if any misconduct is uncovered.
If, following an investigation, fraudulent activity is uncovered by the Insolvency Service, directors could face sanctions including an order disqualifying them from being a director for up to 15 years and the court could make an order that they pay compensation to creditors who have lost out as a result of their actions. In serious cases, the Insolvency Service has the option to instigate a criminal prosecution which could result in a lengthy prison sentence upon conviction, followed by confiscation proceedings.
Ashley Jaques is a Partner in the Restructuring department at Tyr. Ashley specialises in advising individuals and corporates in respect of restructuring and related legal work with an emphasis on non-contentious corporate, commercial and property advice.
Marie Bourke is a Senior Associate in the Regulatory department at Tyr. Marie advises individuals and corporates who are being investigated and prosecuted in relation to fraud and financial crime.
If you would like to discuss the issues raised in this briefing note, please contact Ashley (Ashley.Jaques@tyrlaw.co.uk / +44 (0) 113 5186059) or Marie (firstname.lastname@example.org / +44 (0) 113 5186060).