Director disqualification action against dissolved companies

In our December 2021 article 'Directors beware! New disqualification rules to curb abuse of the company dissolution process', we set out the new and extended legislative powers available under the Company Directors Disqualification Act 1986 to the Insolvency Service to disqualify former directors who abuse the company dissolution process. These provisions apply where the relevant company has been dissolved without initiating a formal insolvency process.

The Insolvency Service, on behalf of the Secretary of State for Business, Energy & Industrial Strategy, has recently used its new powers to disqualify three former directors for dissolving their companies. The allegations of unfitness related to misuse of bounce back loans obtained during the COVID-19 pandemic.

The Insolvency & Restructuring team at Weightmans have a breadth of experience in not only acting for office holders pursuing directors in relation to claims arising out of the insolvency of a company, but also advising directors as to their duties generally, and specifically in situations where the Insolvency Service alleges that directors have engaged in conduct which merits them being disqualified from acting as directors in the future. This may include allegations of:

• Fraudulent behaviour;
• Failing to comply with regulatory requirements;
• Failing to submit statutory returns;
• Failing to keep proper accounting records;
• Failing to submit tax returns or fairly paying the tax due;
• Trading to the detriment of HMRC;
• Transactions to the detriment of creditors.

Understanding the circumstances leading to the company’s insolvency and/or dissolution is of vital importance when encountering such allegations.

When facing such allegations, directors should always look to seek professional advice at the earliest opportunity, preferably before engaging in any correspondence which may prejudice or otherwise harm their position.