Schemes including the BBLS, CBILS, CLBILS and Furlough were all put in place to save the UK economy from a disaster during the pandemic. Sadly though, there have been an increasing number of stories where these schemes were taken advantage of and not used for what they were intended for. This has led to an increased number of investigations by the Insolvency Service resulting in Director Disqualification, Insolvency Claims and in some cases, criminal prosecutions against Directors.

Due to new Legislation, taking professional advice as early as possible is vital as it will be harder for Directors to dissolve companies and avoid repaying Covid Loans and Grants.

What are the changes

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill received Royal Assent on 15 December 2021. Most of its provisions will come into force on 15 February 2022.  The Bill extends the provisions of the Company Directors Disqualification Act to Directors of dissolved companies, enabling the Insolvency Service to investigate their conduct and apply for their disqualification.

The following changes will apply:

• The Insolvency Service now has power to investigate the conduct of the Director of a company that was dissolved without becoming insolvent. If their conduct makes them unfit to be concerned in the management of a company, the Court has the ability to make a Disqualification Order.

• The above power can be exercised up to 3 years after dissolution.

• A Director Disqualification Compensation Order can also be sought where a former Director of a dissolved company has caused loss to creditors.

• The conduct that the Insolvency Service can investigate and consider includes conduct in companies dissolved prior to commencement of the new legislation and which occurred in companies not dissolved at that time.

As a result of the new legislation, it is likely that every such Director will face investigation by the Insolvency Service and others. Directors should be wary of the possible outcomes including Director Disqualification, financial recovery action or Criminal proceedings.This is a significant change from the previous position where Directors only faced investigations in formal insolvency proceedings and removes the ability to avoid such an investigation by just dissolving.  It is therefore all the more important to be proactive in seeking advice as a Director of a company in financial difficulty.

What to do

Directors of companies that are facing financial difficutlies should take advice as early as possible to protect their position as the Director. To find out how we can help you, contact our Corporate Recovery team on 0161 832 6221 or email us on [email protected]  for a FREE initial conversation.