No rebound: company director slammed with Compensation Order

The Insolvency Service continues to pursue company directors for claims arising out of abuse of the Government support schemes offered during the COVID-19 pandemic, with the use of compensation orders becoming a popular remedy alongside director disqualifications.

A director disqualification order or voluntary undertaking between 2 and 15 years bars an individual from serving as a director of a limited company for a predetermined period, which extends to overseas companies with connections in the UK.

A compensation order or voluntary undertaking will hold a company director personally liable for damages suffered by a company.

We have previously seen director disqualification claims arising from abuse of the ‘Eat Out to Help Out’ scheme. We continue to see the Insolvency Service, on behalf of the Secretary of State for Business, Energy and Industrial Strategy, pursuing these claims in addition to claims relating to misuse of the Bounce Back Loan Scheme and, at the same time, pursuing company directors via director disqualification compensation proceedings as a method of recouping funds.  

Recently, the Government published a press release confirming that a company director has been disqualified as a director for 13 years and ordered to repay over £52,163 within 5 weeks by way of a compensation order. The high disqualification ban and compensation personally sought against the company director was as a result of abuse of the Government’s Bounce Back Loan Scheme and false representations in relation to the company’s turnover.

In 2020, the Croydon director applied for the maximum loan available under the Government’s Bounce Back Loan Scheme of £50,000 on behalf of his company. It transpired that this company was only eligible for a loan of £2,000, which is the minimum loan available under the Bounce Back Loan Scheme. The Croydon director transferred £40,000 to his personal account and the remainder was by cash withdrawals.

Bouncing back from setbacks is important for any company director. It is crucial for company directors that are faced with director disqualification claims and/or director disqualification compensation claims to seek professional legal advice as early as possible (and prior to the issue of any court proceedings). It is sensible to check any Directors’ and Officers’ Liability (“D&O”) insurance policy which may be in place. The ruling substantiates more recent actions by the Insolvency Service to seek compensation as redress to combat company director abuse and in order to recoup misused public funds. Accordingly, this article will also be of interest to D&O insurers and insolvency practitioners.