Adele Whaley

+44 (0)1733 887744 awhaley@greenwoodsgrm.co.uk

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Payal Patel

+44 (0)20 3691 2079 ppatel@greenwoodsgrm.co.uk

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Investigations to take place for unfit directors of dissolved companies

Disputes / 02 July 2021

The Government has recently announced that the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (the “Bill”) will provide the Insolvency Service with greater powers to enable them to investigate directors of a dissolved company. This is a significant change from the status quo which only enables the Insolvency Service to investigate directors of live companies or those that are entering into a form of insolvency.

The Bill will close a legal loophole and act as a deterrent against the misuse of the dissolution process. The key features and aims of the Bill include:

—  The Insolvency Service’s powers will be retrospective – this is an important feature to allow the Government an opportunity to take action against directors that benefitted from Bounce Back Loans during the pandemic and then used the dissolution process to avoid repaying them.

—  Directors may be encouraged to take a more formal route, such as liquidation, in view of the risk of potential investigation at an unknown point in the future.

—  It may also help where a company with employees ceases and is dissolved – particularly helping with issues relating to proper notice and redundancy pay.

—  The extension of power will include relevant sanctions such as disqualification from acting as a company director for up to 15 years. This will help prevent directors of dissolved companies from setting up a new, near-identical business after the dissolution which often leaves customers, creditors or HMRC unpaid.

Insolvent businesses are therefore encouraged to take advice on their position and the options open to them sooner rather than later.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoodsgrm.co.uk

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