During the pandemic, schemes were put in place to save the UK economy from catastrophe. These included the Bounce Back Loans, Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Furlough.
Unfortunately, there have been numerous instances where these schemes were abused and not used for their intended purpose. In 15 months, from March 2020, the three main support schemes handed out nearly £80 billion to businesses, but it has been recently reported that £4.9 billion of this has been lost to fraud.
Investigations by The Insolvency Service have increased, sometimes resulting in Director Disqualification, Insolvency Claims and criminal prosecutions.
Directors Disqualification
An insolvent company does not automatically result in the director being disqualified. This only happens when the director has not acted in the best interest of their company. There have been several articles published by The Insolvency Service of cases which they have investigated, resulting in disqualification for the directors.
In this case, two directors were disqualified for abusing the Bounce Back Loan (BBL) scheme, when they lied about the turnover of their companies to claim more than their entitlement. The two directors then proceeded to send monthly payments to up to four individuals. The two claimed these were for company expenses, but this could not be verified. Both directors received a disqualification of 11 years and 10 years.
Taking advice sooner rather than later from a licensed professional is essential as it will be harder for Directors to dissolve companies with debt due to new legislation.
What is the new legislation?
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill received Royal Assent on 15 December 2021, and the majority of it will come into place on 15 February 2022. This allows The Insolvency Service to investigate the conduct of directors of already dissolved companies, and apply for their disqualification if necessary.
The new changes:
- The Insolvency Service can now investigate directors which dissolved their companies without being insolvent. If their conduct causes concern, the court can create a Disqualification Order. This can be practiced up to 3 years after the dissolution.
- A Director Disqualification Compensation Order can also be pursued when a former director of a dissolved company has caused loss to its creditors.
- The Insolvency Service can investigate companies dissolved prior to the new legislation and companies not yet dissolved after the new legislation.
How does this affect you?
Due to this, it's likely every Director will be investigated by The Insolvency Service. Directors should be aware of the possible outcomes they may face, including;
- Directors Disqualification
- Financial recovery action
- Or criminal proceedings
Previously, directors only faced investigations during formal insolvency proceedings, but these changes no longer allow directors to avoid investigation by dissolving their company.
It is important not to panic as this will not apply to every director. Seeking advice from a trusted licensed professional about your specific situation means you're acting in the best interest of your company, and is essential if your company is facing financial distress.
Blog by Kay Johnson Gee
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