The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill is currently going through Parliament. The Bill looks at the potential disqualification of directors of dissolved companies.
The main provisions are that the Insolvency Service will be able to:
- investigate the conduct of directors and
- bring charges against them under the Company Directors Disqualification Act (CDDA) 1986.
Moreover, where a court finds that the conduct of a director of a dissolved firm was unlawful, penalties could include:
- disqualification from acting as a director for a period of 2 to 15 years; and
- the payment of compensation to creditors.
The breaching of an order can also lead to a 2-year prison sentence and/or other fines.
The three main complaints about the conduct of former directors are:
- allowing or causing a company to be dissolved, with a new company continuing its business, sometimes known as phoenix from the ashes cases or “phoenixism”;
- using the dissolution process to avoid formal insolvency costs, and
- avoiding an investigation of conduct under the Company Directors Disqualification Act (CDDA) 1986.
The reason for the Bill is the UK government’s concern that some directors may also dissolve a company to avoid repaying government-backed loans. All company directors should be aware of this new Bill too. If you have any further queries about loans taken during the pandemic, please contact us for expert advice.