Recent statistics have revealed that The Insolvency Service prosecutions of company directors dropped by nearly 50% last year.

Data from the government agency confirms that in the 12 months to March 2023, it was recorded that in England and Wales there had been 95 charges brought against company directors, by The Insolvency Service. This is in contrast to the 12 months prior to this, where only 174 charges were brought.

This news comes despite reports that corporate fraud had reached an all-time high during the Covid-19 pandemic.

In unpredictable circumstances during a crisis, when companies are at their most fragile, fraud can be seen as both easier, and more attractive for a director. There have been cases of directors making false statements on their applications for bounce-back loans, which have then gone unpaid due to the company’s insolvency.

A director that commits actions such as these can face the following consequences:

  1. Proceedings brought against them for their disqualification as a director;
  2. Proceedings brought against them for a personal compensation order; and
  3. Criminal prosecution.

Despite the perceived high levels of corporate fraud during the pandemic, official figures have reported that in the year to March 2023, there has been a significant decrease in the number of charges brought against company directors by The Insolvency Service, with the number falling by almost half.

Michael Pallot, a partner at audit and advisory group Mazars and insolvency fraud specialist commented in an interview with The Financial Times:

“The clock is ticking to pursue directors that have fraudulently claimed Covid support. The longer it takes for investigations to start, the harder it is to trace and recoup funds.

“It is likely that the Insolvency Service is already under resource constraints due to increasing insolvency numbers throughout 2023.”

Company insolvencies increased by around 14% in 2023, compared with the previous year. This marked a 30-year high as the number of insolvencies rose from 22,109 to 25,158. However, this in turn has not seen a rise in the prosecution rate of directors responsible for fraud, which has meant that the recovery of defrauded money has been low.

It has been estimated by The National Audit Office that only £11.4m has been recovered of the £1.1bn which was lost to both fraud and error, through business grants from the Covid pandemic.

While we may currently be experiencing a decrease in director prosecutions by The Insolvency Service, directors should not be complacent to their responsibilities and the consequences of failing to adhere to them.

Here at Farleys, we have experts in insolvency available to offer advice on these matters and a director’s responsibilities, particularly when faced with a potentially insolvent company. To discuss your circumstances in confidence, please call 0845 287 0939 or contact us by email.