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Crackdown on Directors who dissolve companies to avoid paying debt

Published on:April 8, 2022Author:Liam Wright

Crackdown on Directors who dissolve companies to avoid paying debt

Beverley Budsworth – MD of The Business Debt Advisor 

The government has gone tough on Directors who dissolve their companies to avoid paying debts particularly Bounce Back Loans “BBL’s”

New legislation

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act has given The Insolvency Service new powers to tackle directors dissolving companies to avoid repaying Government backed loans put in place to support businesses during the Coronavirus pandemic.

According to a recent update from the Insolvency Service the numbers of disqualifications are rising (exact numbers not yet available) and many of these disqualifications are in the medium to high brackets.

The maximum period of disqualification is 15 years with 10 – 15 years generally reserved for cases where credit has been obtained on a fraudulent basis. The Insolvency Service have the power to investigate directors conduct of companies that proceed into formal insolvency or with live companies where there is evidence of wrongdoing.

The act extends those powers to directors of companies that have been dissolved. There is now no need for these companies to be reinstated before action can follow.

What type of Action?

If misconduct is found, directors can face disqualification from acting as directors in the future for up to 15 years and in serious case, they can face prosecution. For those disqualified, there could also be compensation orders sought against them requiring them to pay compensation to creditors who have lost out as a result of their fraudulent behaviour. The act has a retrospective aspect and can catch dissolutions in the past 3 years.

Examples of Disqualification cases

Example A

A director with 3 companies, 3 BBLs of £50,000 with no evidence of any company trading. A 13-year disqualification undertaking was accepted by the Secretary of State. A decision not to pursue a Compensation Order was made as the office-holder is seeking recovery.

Example B

2 directors, 2 companies, 2 BBLs of £50,000 obtained but records indicate turnover was over-estimated on both applications and no evidence the money was used for the economic benefit of the company.

 

Contemplating striking off – take advice  

Getting your company struck off can clearly have nasty consequences which could play havoc with not only your brain but your personal finances. It’s wise to take advice on the alternatives including liquidation.

The Liquidator has a duty to investigate directors’ conduct.  This will include misuse of Covid funding and also reviewing sums taken out of the company, etc. If you do owe the company money, the Liquidator is likely to take into account your circumstances and if payment in full is not possible, they may be prepared to agree a settlement. The alternative could be costly legal action and a compensation order that could wipe out your personal assets.

Making Informed Decisions

It is so much easier to make decisions when you have weighed up all the options. These options can only be properly investigated if you know the pros and cons of each option. It’s vital to speak to someone you can trust and who also knows what they are talking about. The Business Debt Advisor team have been advising directors for 22 years. There are very few problems we have not encountered. Doing the Right Thing is in our DNA. Call on 0800 0851 825 or email advice@thebusinessdebtadvisor.co.uk

The Debt Advisor Ltd which incorporates The Business Debt Advisor is authorised and regulated by The Financial Conduct Authority, number 659920. Beverley Budsworth, the MD and IP is licensed and regulated by The Insolvency Practitioners Association.