New powers to investigate directors of dissolved companies

The 'Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill' will give the Insolvency Service new powers to investigate directors of companies that have been dissolved. The aim will be to prevent directors from dissolving their companies to avoid creditors.

The Bill is the result of government concerns that this has been a method of fraudulently avoiding the repayment of Government-backed loans given to businesses to support them during the Coronavirus pandemic.

• The new rules aim to prevent directors of dissolved companies from 'phoenixing', as in setting up a near-identical business after the Dissolution of their existing company. This often leaves customers and other creditors, such as suppliers or HMRC, unpaid.
• The bill also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years. These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.
• Under current rules, the Insolvency Service has powers to investigate directors of live companies or those entering a form of insolvency. If wrongdoing or malpractice is found, directors can face sanctions including a ban of up to 15 years.
• The measures included in the Bill are retrospective to enable the Insolvency Service to also tackle Directors who have inappropriately wound up companies that have benefited from Bounce Back Loans.

Business Secretary Kwasi Kwarteng said, "As we build back better from the pandemic, we need to restore business confidence, but also people’s confidence in business - which is why we will not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket.

We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account."

Dr Roger Barker, Director of Policy and Corporate Governance at the Institute of Directors, said, "Company directors fulfil a central role in ensuring that their businesses are well-governed. Although corporate dissolution may be inevitable in some cases, it should only be used as a last resort – after all other realistic avenues for protecting the interests of stakeholders have been exhausted. Using company dissolution as a mechanism for the evasion of a directors’ duties has no place in the governance of a responsible enterprise."

This Bill also delivers on the commitment to rule out COVID-19 related Material Change of Circumstances (MCC) business rate appeals. This is due to the fact that market-wide economic changes to property values, such as from COVID-19, can only be properly considered at general rates revaluations.

Useful guides on this topic

Ceasing trading: Index (freeview)
An index to our key guides covering how a company can cease trading what options are available when a trade has ceased.

Ceasing trading: What are your options?
What are your options if you are going to cease trading? What processes must be followed if you want to close down a company? What are the tax, company and insolvency law requirements?

Targeted Anti-Avoidance Rule (TAAR) 
From 6 April 2016, a TAAR was introduced to target ‘phoenixing’. Broadly distributions on a winding-up will be taxable as income if within two years the individual (or someone connected with them) carries on a similar trade or activity.

External links

New powers to tackle unfit directors