At present, the Insolvency Service has powers to investigate directors of active companies or those entering a form of insolvency. Unfortunately, the current legislation creates a legal loophole which has been abused by directors taking advantage of not only the dissolution process, but more presently the Covid support schemes.

Directors have been using this loophole by dissolving the concerned company who has had the monetary benefit of a support scheme and setting up a near identical business after the dissolution, often leaving customers, other creditors, suppliers, HMRC and the Covid support loans, unpaid.

Under new legislation, this legal loophole is to be closed and the Insolvency Service are to be given powers to investigate directors of companies that have been dissolved, therefore preventing the dissolution process from being used as a method of avoiding repayment of the Covid support schemes.

In addition to the new power to investigate, the usual sanctions such as disqualification from acting as a director for up to 15 years, be subjected to a fine or even possible imprisonment will apply.

These powers will be exercised by the Insolvency Service on behalf of the business secretary Kwasi Kwarteng. It is hoped that this new legislation will not only restore business confidence, but also the public’s confidence in business as Business Secretary Kwasi Kwarteng said:

“As we build back better from the pandemic, we need to restore business confidence, but also people’s confidence in business – which is why we will not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket.

We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

This new legislation highlights the importance of directors taking legal advice early once realising their company may be insolvent and not using the dissolution process as a way of avoiding debts. We have advised a number of directors on such matters have the expertise and experience to provide you with the best advice. Please get in touch with Farleys’ specialist insolvency team on 0845 287 0939 or via email if you prefer.