Dodgy directors in the cross hairs as the Insolvency Service looks to crack down on dissolved companies

Dodgy directors in the cross hairs as the Insolvency Service looks to crack down on dissolved companies

Every month ICSM lists dissolved companies in a number of sectors including the media and printing, haulage and logistics as well as hospitality and retail.

Nothing wrong with winding up a company if the customer base no longer exists or the owner wants to retire without the stress of selling up but the trade body for insolvency practitioners R3 is concerned there’s been an increase of firms being wound up to avoid scrutiny.

What they mean by that is directors seeking to dodge the eagle eyes of the law by covering their tracks by winding up their firms. There has been suspicions for years that practices such as selling assets on to related parties and creating a phoenix operation are cynical ways to hide funds taken from once profitable companies at the expense of suppliers and staff.

To counter this the Government run Insolvency Service will have new powers to ‘investigate directors of companies that have been dissolved, closing a legal loophole and acting as a strong deterrent against the misuse of the dissolution process.’

The new Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill includes new powers that have been prompted by hundreds of suspicious firms that are wound up once the directors have received some of the financial help on offer during the Covid crisis.

The editorial on 3R’s website reported: “The change will mean that directors of dissolved companies will be put on a more equal footing with their peers at active and liquidated companies, where the Insolvency Service has existing powers to investigate potential wrongdoing, and to exercise sanctions against directors who have been found to have acted dishonestly.

“The Government also hopes that the move will make it more difficult for directors to use the dissolution process to walk away from their company's unpaid debts, and to set up a very similar new company following the dissolution.

“In the context of the billions in state-backed loans which were made available to businesses to help them deal with the impact of the pandemic, the Government's interest in cracking down on companies which attempt to evade their debts is clear and understandable, and will benefit the public purse.

“It will also benefit other creditors -  from staff to suppliers - who are also affected by unpaid debts following a dissolution, and will help to crack down on fraud, by closing off a route by which investigations can be dodged.”

Ian Carrotte of ICSM said he hoped the Government would fund the added investigations into rogue directors as potentially the new rules will increase the work of the Insolvency Service.

He said: “Anecdotally at ICSM we hear stories about how the Covid support scheme has been abused by zombie firms and even firms set up specifically to harvest the cash before shutting up shop. They blame it on Covid or Brexit but it doesn’t take a detective to see what’s going on. Any tightening up of the rules are welcome as it is always the suppliers and staff who pay.”

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