New Directors’ Disqualification Regime to Directors of Dissolved Companies

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, currently going through Parliament, contains implications for directors of dissolved companies.

The main provisions of the Bill are that the Insolvency Service will be able to retrospectively:

• investigate the conduct of directors of dissolved companies; and
• bring disqualification proceedings against them under the Company Directors Disqualification Act (CDDA) 1986.

Where a Court is satisfied that the conduct of a director of a dissolved company renders that director unfit to be concerned in the management of a company, penalties could include:

• disqualification from acting as a director for a period of two to 15 years; and
• the payment of compensation to creditors.

The breach of a director’s disqualification order can lead to imprisonment for up to two years and/or substantial fines.

In the notes to the bill the three main complaints about the conduct of former directors are detailed:

• allowing or causing a company to be dissolved, effectively shedding its liabilities, with a new company continuing its business, which is sometimes known as phoenix from the ashes scenarios or “phoenixism”;
• using the dissolution process as a short-circuit to avoid the costs and implications of a formal insolvency process; and
• the avoidance of investigation of conduct under the Company Directors Disqualification Act (CDDA) 1986.

The reason for the retrospective nature of this bill is the UK governments concern that company directors who have taken out Government-backed loans for support during the coronavirus pandemic may seek to dissolve the company rather than repay the loan.

All company directors should be aware of this new legislation and if you have any queries about loans taken during the Pandemic please contact us for a confidential discussion.   

See: https://bills.parliament.uk/bills/2861/publications