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Clampdown Announced On Directors Dissolving Companies to Avoid Paying Debts

By Jon Munnery
24 December 2021

The Insolvency Service has announced the beginning of what is being describing as a clampdown on company directors who dissolve their businesses to avoid paying debts and settling liabilities.

New laws have come into effect to give the Insolvency Service greater powers to investigate and disqualify what it considers “rogue directors”.

The fundamental aim of the new laws is to reduce the extent to which company directors leave their employees unpaid and their liabilities to creditors outstanding after they dissolve a business.

Powers given to the Insolvency Service mean it can investigate directors who dissolve their companies either through an administration process or through liquidation.

Companies that are still operating can also be investigated by the authorities if there is evidence of a company director being guilty of misconduct.

Directors found to have acted improperly in dissolving companies to avoid paying debts can now be handed bans from being directors for up to 15 years, or they can be legally prosecuted in the most serious of cases.

In addition to their private sector creditors, the Insolvency Service is aiming to ensure that dissolved companies do not leave the taxpayer or HMRC out of pocket in ways that are improper and fundamentally unfair.

Another reason why legislation relating to rogue company directors has been revised is so that business bosses are not able to easily avoid repaying debts they took on through government schemes during the first year or so of the pandemic.

“These new powers will curb those rogue directors who seek to avoid paying back their debts, including government loans provided to support businesses and save jobs,” said business secretary Kwasi Kwarteng in a statement.

“Government is committed to tackling those who seek to leave the British taxpayer out of pocket by abusing the covid financial support that has been so vital to businesses,” he added.

Representatives of the UK’s financial services sector have offered their backing for the government’s new approach to tackling rogue directors and debt avoidance in insolvency scenarios.

“The ability to dissolve a company when necessary is a right reserved in legitimate circumstances where there are no outstanding creditors, however, it can be open to abuse,” commented Stephen Pegge, managing director of the banking sector lobby group UK Finance.

“The banking and finance industry therefore supports this legislation which will provide much needed powers to the Insolvency Service to help hold rogue directors to account,” he added.

Jonathan Munnery
Insolvency & Restructuring Expert
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