Insolvency Service continues to target directors who dissolve companies to evade debts


The Insolvency Service has recently blogged about the success of its new investigative and enforcement powers: New investigative powers: enforcement success thanks to teamwork – Insolvency Service (blog.gov.uk)                                                                                     

In December 2021 under new legislation the Insolvency Service was given extended powers to investigate directors whose companies have been dissolved and, where appropriate, to seek an order that the director(s) pay compensation to creditors.  The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act retrospectively permits an application to be made for a disqualification order in the 3 year period after a company has been dissolved without the need for a prior application for the company to be restored to the Register of Companies and wound-up.

Nearly £80 billion of government-backed funding was provided to businesses in the UK from March 2020 to May 2021 in the form of the Bounce Back loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS) and other forms of support, all of which were intended to help businesses navigate and survive the crippling financial effects of the pandemic.  The various schemes were, of necessity, hastily implemented and, disappointingly but perhaps unsurprisingly, it now transpires that a number of directors made fraudulent loan applications, obtaining sums in excess of that to which their company was entitled or misapplying legitimately obtained funds once in the hands of the company.

The Insolvency Service is using its new powers to target individual directors who wrongly claimed or misapplied Covid-support monies.  In Summer 2022, the first four such disqualification orders were obtained against individuals who had secured bounce back loans before dissolving their companies in an attempt to evade their liabilities.  In all of these cases, the director’s conduct was found to warrant a middle bracket period of disqualification (6 to 10 years) which will significantly restrict future business dealings for those individuals.  Where appropriate, the Insolvency Service is likely to seek Compensation Orders against directors requiring them to repay some or all of the loan monies fraudulently obtained.  This could include situations where, as a result of a change in circumstances, the money has been used for alternative purposes other than those for which it was advanced.

If you are a director or a company encountering difficulties and contemplating closure of your company by dissolution or liquidation, or are facing a claim relating to a bounce-back loan or other Covid-support scheme, it is important to take advice as early as possible as this will likely ensure that a greater number of options are available to you.

If you require advice in that regard or more generally in relation to any aspect of corporate or personal insolvency, please contact John Bradshaw or Sarah Mower in our Insolvency & Business Recovery Team.

John Bradshaw is a partner and specialist in Insolvency & Business Recovery at Barker Gotelee Solicitors.

Suffolk Insolvency Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email bg@barkergotelee.co.uk