The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 received Royal Assent on 15 December 2021. Under this new legislation, the Insolvency Service has been granted additional powers to investigate and disqualify directors of dissolved companies.
Prior to this Act, the Insolvency Service was able to investigate the conduct of directors of companies entering an insolvency procedure, such as administration and liquidation, but not the conduct of directors of dissolved companies. There was therefore a “loophole” where directors of insolvent companies had the potential to dissolve their company instead of entering it into an insolvency procedure. If someone did want the conduct of a director of a dissolved company to be examined, the dissolved company would first need to be restored to the register. This was a costly and off-putting hurdle to overcome.
The Act was introduced as a result of concern that directors of dissolved companies were making use of this loophole, to avoid their conduct being investigated by the Insolvency Service. Such investigation has the potential to lead to disqualification and, if loss had been caused to creditors as a result of the director’s conduct, the court ordering that the director pay compensation to creditors in respect of these losses.
With the introduction of bounce back loans, there was further concern that the dissolution process may be abused by directors using it to avoid the repayment of these loans.
As a result of the Act coming into force, the Insolvency Service now has the same powers to investigate the conduct of directors of dissolved companies and to disqualify them if such conduct justifies.
It is important that directors are aware of this change in legislation and ensure that they only dissolve their company if the criteria for doing so are met. If you are a director, unsure of the correct route for your company, please contact our specialist insolvency team by calling 0845 287 0939 or contact us by email.