Directors of dissolved companies could be made liable for claims, Government reveals

Company directors who misuse the dissolution process could be made personally liable for claims against their former business, it has been revealed.

The new legislation, announced last week, is designed to close a legal loophole that allows directors to dissolve a company and reopen a new one to the detriment of creditors.

Under existing laws, the Insolvency Service has powers to only investigate directors of “live companies” or those entering a form of insolvency. But the new rules will also allow the regulator to go after directors of dissolved companies.

It means that, where wrongdoing or malpractice is found, the Insolvency Service will have the power to disqualify directors from running any other company for up to 15 years.

Commenting on the announcement, Business Secretary Kwasi Kwarteng said the new legislation will 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.”

“We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account,” he said.

Dr Roger Barker, Director of Policy and Corporate Governance at the Institute of Directors, added: “Company directors fulfil a central role in ensuring that their businesses are well governed. Although corporate dissolution may be inevitable in some cases, it should only be used as a last resort – after all other realistic avenues for protecting the interests of stakeholders have been exhausted.

“Using company dissolution as a mechanism for the evasion of a directors’ duties has no place in the governance of a responsible enterprise.”

The report also suggests that the new rules will prevent dissolution from being used as “a method of fraudulently avoiding repayment” of Government-backed loans – such as those issued through the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loans Scheme (BBLS.)

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