Insolvency Service gets new retrospective powers to investigate directors of dissolved companies and combat Bounce Back Loan Fraud

This is the first piece of legislation in this area following the 2021 Budget. Director Disqualification might be an outcome.

In a recent article, we reported on the fact that the first Bounce Back Loan (BBL) repayments were starting in May 2021 and that this might be enough to tip some businesses into insolvency. We also commented on the fact that if a company cannot repay a BBL, liability is with the company and not the director(s), providing the directors have complied with their statutory and financial duties. However, with significant levels of misuse and fraud being seen with BBLs, the Government has said that the Insolvency Service will be granted greater powers to investigate directors who have dissolved their companies in order to fraudulently avoid paying back Government backed loans. This could mean director disqualification.

The Ratings (Coronavirus) and Director Disqualification (Dissolved Companies) Bill

This Bill is intended to be retrospective and act as a ‘strong deterrent against the misuse’ of the dissolution process, whereby directors are taking advantage of a legal loophole to deliberately dissolve companies to avoid having to repay BBLs given to them to support their businesses during the Covid-19 pandemic.

The Bill will extend the power of the Insolvency Service to investigate directors who attempt to avoid repayments by dissolving their companies by including sanctions such as director disqualification for up to 15 years. Currently, the Insolvency Service only has the power to disqualify directors of live companies or those in an Insolvency Process. As a result of this new Bill, the Insolvency Service will have the power to tackle Directors who have “inappropriately” wound-up companies that have benefited from Bounce Back Loans.

What does company dissolution mean? Is it the same as liquidation?

Company dissolution, also known as striking off, is a method of closing down a limited company by removing its name from the official register at Companies House. It is not the same as liquidation.

Dissolution, when used correctly, is a way of closing a company where no debt is present or where any outstanding debt or other liabilities can be settled in full within 12 months.

If a company cannot afford to pay off its debts, then a Liquidation is the likely outcome, where the assets of an insolvent company are extracted to realise as much money as possible towards paying off creditors. Liquidation can only be entered into with a Licensed Insolvency Practitioner.

The reason for the new Bill is that directors were able to take advantage of a loophole to dissolve companies which were still able to pay their debts as a means of avoiding repaying BBLs. The new Bill seeks to close that loophole.

Business secretary Kwasi Kwarteng said: “As we build back better from the pandemic, we need to restore business confidence, but also people’s confidence in business – which is why we will not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket.

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.”

Talk to us if you are worried about repayments of BBLs and Insolvency

The financial shock that the pandemic has given many thousands of businesses means that the start of BBL repayments could push some over the edge. The new powers given to the Insolvency Service will increase the chances of directors who have fraudulently used BBLs being caught and punished.

However, if you are concerned about the financial position of your company and are facing insolvency (despite your best efforts to trade through the pandemic), especially if you are struggling to repay a BBL please contact us or contact one of our offices, below.

Also K&W Recovery, trading as Antony Batty and Company, Thames Valley: