The government is introducing new legislation to target company directors who dissolve their businesses for their own gain and leave staff or taxpayers out of pocket.

The Insolvency Service will be given powers to investigate directors of companies that have been dissolved, closing a legal loophole and acting as a strong deterrent against the misuse of the dissolution process.

The process will no longer be able to be used as a method of fraudulently avoiding repayment of Government backed loans given to businesses to support them during the Coronavirus pandemic.

Extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years.

These powers will be exercised by the Insolvency Service on behalf of the Business Secretary.

At present, the Insolvency Service has powers to investigate directors of live companies or those entering a form of insolvency. If wrongdoing or malpractice is found, directors can face sanctions including a ban of up to 15 years.

The measure will also help to prevent directors of dissolved companies from setting up a near identical business after the dissolution, often leaving customers and other creditors, such as suppliers or HMRC, unpaid.

The measures included in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill are retrospective and will enable the Insolvency Service to also tackle directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

Please contact us for more information about insolvency and company law issues.