In the latest data released by The Insolvency Service for their enforcement outcomes, there have been 31 directors disqualifications to date in this financial year relating specifically to dissolved or struck off companies.
This is an increase on the 25 recorded in 2022/23 so overall there have been 56 cases where there has been sufficient evidence of misconduct to attract this serious penalty due to their actions.
So why are more directors being disqualified after striking off their business?
The answer involves not just the method but also the motive.
For many years the Insolvency Service has had the power to investigate directors of companies for suspected misconduct and wrongdoing if they entered any form of insolvency including administration and liquidation.
In December 2021, new legislation was passed called The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act.
This extended the powers to directors of dissolved companies for the first time, giving them the same oversight already enjoyed for the other procedures including the same penalties such as disqualification for up to 15 years and in the most serious cases, prosecution.
The act brought in another significant change – that there was no need to restore a company before any investigation could take place.
Previously the dissolved company would have to be restored to the Companies House register which would see the Insolvency Service apply to the Court to restore the company to the register.
Once restored, they would then have to obtain documents and other information from the company to better investigate directors’ conduct then, when appropriate, seek a disqualification order.
Now they can begin investigations immediately and the Business Secretary will be able to apply to the court for an order requiring any former director of a dissolved company who is disqualified to pay compensation to creditors who have lost out due to their fraudulent behaviour.
Why were the new powers introduced?
As we’ve previously written, some unscrupulous directors were improperly using the dissolution solution to close their business to either avoid repaying creditors or as part of a process called “phoenixing” – where directors will close a business and create a new one with a similar name but crucially no debt or obligations.
The new powers give creditors – including the government and lenders of bounce back loans – sufficient redress when it comes to recovering outstanding debts.
Chris Horner, insolvency director with BusinessRescueExpert said: “Striking off a business is the cheapest and most efficient way of closing a business. But as there are strict eligibility requirements, the Insolvency Service saw that more directors were trying to use the process even if they were not eligible and didn’t meet the conditions.
“Some directors thought they could avoid paying outstanding wages, their suppliers or their bounce back loans if they could sneak their dissolution through – but these disqualifications prove that this is no longer the case.
“Directors of companies at risk of insolvency need to be aware of the risks of misusing the strike off process – even if they do it inadvertently.
“Depending on the unique circumstances of their business, solutions such as company voluntary arrangements (CVAs), administration or liquidations could be more suitable even if they have outstanding bounce back loans or other debts.
“The most important thing directors can do is get some impartial, professional ad
vice before they make any decision which could have serious commercial and personal consequences.”
This is why we offer a free initial consultation for any firm that wants to explore solutions to its problems in more detail before deciding how to solve them.
Get in touch with us today to arrange a convenient time and day for your call and our expert advisors will do the rest.