Is the Insolvency Service able to deal with the crackdown on dodgy directors?

The business secretary, Vince Cable, has announced plans for tougher penalties against “rogue and reckless” directors. The measures allow investigators to take into consideration any convictions overseas as well as those in the UK.

The Insolvency Service is responsible for investigating potential misconduct by directors of insolvent companies that are referred to it by insolvency practitioners.

The plans imply that the Insolvency Service may need to carry out a more thorough investigation of those directors who are brought to its attention. However, it must be questioned whether or not the Insolvency Service has the capacity to expand its investigations of company directors to cover matters overseas.

The Insolvency Service has been hit with a series of cutbacks since 2011, with the number of staff employed falling from 3,200 in 2011 to around 2,000.  In addition to this, research by law firm Hugh James has highlighted that, due to continued cuts, the Insolvency Service has been forced to focus on “easy target” cases involving overdue debts to the HMRC, at the expense of investigating larger, more time-consuming forms of malpractice.

According to the research, in 2012-13, the percentage of director disqualifications that were due to tax debts to HMRC rose to 62% from 52% in 2011-12 and 35% in 2010-11. In contrast to this, the number of disqualifications for criminal matters have fallen from 259 in 2010-11 to 54 in 2012-13, while disqualifications for trading while insolvent have dropped from 40 in 2010-11 to just 1 in 2012-13.

In March last year it was reported that the Insolvency Service was on the verge on insolvency itself and that it need an emergency injection of cash from the government to stay afloat.

The above statistics, along with the recent news that the Insolvency Service has had to cut 50 front line investigators, do not indicate that the Insolvency Service is in a position to expand its investigations of company directors. Although the announcement from Vince Cable is an encouraging one, it is more concerning to see the continued cuts at the Insolvency Service and I must question the capabilities of the Insolvency Service to help to enforce Vince Cable’s new plans.

If you would like to speak to one of our insolvency solicitors about how these plans might affect you, or if you would like to speak to a solicitor about any other company law matter, please get in touch.