Investigating Directors of Dissolved UK Companies
From 15 February 2022, the UK Insolvency Service is granted new powers to investigate and disqualify or prosecute directors of dissolved UK companies. The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act (the Act) extends the Insolvency Service’s powers, on behalf of the UK Business Secretary, to deal with company directors who abuse the company dissolution process.
Under UK law there is a simplified voluntary strike off and dissolution process for non-trading companies that meet certain criteria under the Companies Act 2006. Previously directors of dissolved companies fell outside the ambit of the Company Directors Disqualification Act 1986 (the CDDA). This meant that unless the company was restored to the register, directors who used the process could avoid scrutiny by the Insolvency Service or the risk of being made personally liable for a dissolved company’s debts.
The Act extends investigatory powers to directors of dissolved companies and if misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution. There is no need for the company to be restored to the register whilst this is happening. The Business Secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.
The Act takes effect retrospectively. The conduct of directors of dissolved companies that occurred prior to the Act becoming law can be investigated. Disqualification action may be taken with regard to that conduct. However, such an application must be made within three years after dissolution. This is similar to the position under the CDDA where the Insolvency Service can only make an application for a disqualification order within three years of the relevant company entering an insolvency process, unless otherwise directed by the court.
The efficacy of the Act will depend on the reporting by creditors and other interested parties of particular situations to be investigated and the bandwidth of the Insolvency Service to investigate and prosecute wrongdoers.