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Disqualification of Directors of Dissolved Companies

Joe Longhurst, Assistant Manager, Recovery Solutions
20/09/2022
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On 15 December 2021, new legislation came into force so that directors of a dissolved company can be subject to investigation, disqualification proceedings and in the most serious of cases, prosecution.

The process of dissolving a company was never intended as a way for directors to avoid the consequences of wrongful conduct. However, an increasing number of claims are being brought against directors that have allegedly done just that, in particular, directors misusing government assistance received during the COVID-19 pandemic.

Previously, if a company was dissolved without going through a formal liquidation process, its directors would not be subject to an investigation into their conduct under the Company Directors Disqualification Act 1986, unless the company was subsequently restored. However, under the new legislation the hurdle of restoring a company to the register is no longer required.

The new legislation is therefore intended to not only give pause to directors of a company who may be considering dissolution as a method of avoiding scrutiny, but also, given that the Act takes effect retrospectively, provides an avenue for action to be taken against directors that may previously have used dissolution for such a purpose.

The Insolvency Service is now able to look into the activity of all companies which received government backed loans or other financial assistance during the pandemic and that have since dissolved. Directors of these companies may now face disqualification proceedings, an order to personally compensate creditors and, in the most serious of cases, prosecution.

For creditors who had previously struggled to hold directors to account, this is a welcome step. Creditors are now able to report their concerns directly to The Insolvency Service. Absent of a complaint by a creditor (or other interested party), bad behaviour could still pass by unnoticed. However, with the Act now in force, ‘industry’ has stepped in, with a number of solicitors offering services to pursue a director who has misused government funding.

A director considering dissolution would be well advised to take advice on both their personal responsibilities and those of a company, particularly in circumstances where a company is insolvent or at risk of insolvency.

How Crowe can help

At Crowe, we have a team of experienced and licensed Insolvency Practitioners who can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Steven Edwards or Vince Green who are licensed Insolvency Practitioners, or your usual Crowe contact.

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The existing directors' disqualification system is now extended to the directors of dissolved firms.
Looking at the Corporate Insolvency and Governance Bill 2020, giving struggling businesses a formal breathing space to pursue a rescue plan.

Contact us

Steven Edwards
Steven Edwards
Partner, Recovery Solutions
Kent