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Government Promises Tough Action Against Directors ‘Recklessly Profiting’ From Company Dissolutions

By Jon Munnery
28 July 2020

The government has taken steps to strengthen the powers of the Insolvency Service when it comes to cases of improper conduct during company dissolutions.

While acknowledging that “the vast majority of UK companies are run responsibly”, the government’s Department for Business, Energy & Industrial Strategy has made clear its concerns about the “minority of directors who deliberately dodge debts by dissolving companies”.

As a result, the Insolvency Service will soon be able to issue fines and disqualify company directors who dissolve businesses with the aim of avoiding payments of debt owed to creditors or to employees.

Hopes are that the service and its investigators will be able to take quick action against directors who dissolve a company specifically in order to get rid of its debts before then moving on to create a very similar business a short time later.

A key aim of the government’s plans is to ensure that employees and suppliers of dissolved companies are less frequently left unpaid when businesses go bust.

As part of its package of new measures, the government has said that companies struggling financially will be given more time to formulate viable rescue and recovery plans so that jobs can be better safeguarded in the context of insolvency situations.

“Some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies,” business minister Kelly Tolhurst said in a statement. “This can’t continue.”

Further details on the government’s plans to improve standards of corporate governance and insolvency regulations are to be outlined in greater detail in the coming weeks and months.

The ideas sketched out so far have been welcomed by representatives of the insolvency industry, including by the UK’s main insolvency and restructuring trade body R3.

“R3 welcomes the government’s announcement that it is progressing its corporate insolvency proposals, which should help to ensure that the UK’s insolvency and restructuring framework retains its world-class status,” said Stuart Frith, president of R3.

“Our members have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts.

“A strengthened disqualification regime will be an important part of ensuring that directors are less likely to walk away from their responsibilities.”

Jonathan Munnery
Insolvency & Restructuring Expert
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