Beware Company Directors!
Directors’ Disqualification procedures and Dissolved Companies
The estimated timeline is anything from now to early 2022 BUT will have retrospective effect to investigate the conduct of directors of dissolved companies and that proceedings can be commenced against them under the Company Directors Disqualification Act (CDDA) 1986.
If and when the Bill is passed, and if it can be proved that the misconduct of the directors of a dissolved company was such that he or she is unfit to be concerned in the management of a company then there could possibly be a disqualification from acting as a director for a period of two to fifteen years; and may also result in the payment of compensation to creditors. It should be noted that a breach of the CDDA Order can imprison the directors anything from two to fifteen years and in some cases significant fines.
The dissolution of the company is easy and doesn’t really cost that much. It can be done online at Companies House by paying a small fee and filling out an online form. The Registrar of Companies have been known to strike a companies off if for instance , the annual filing requirements are not met .
Various reasons why the directors of a company may wish to dissolve it and it is for this reason as in it is far too easy to dissolve a company which the new Bill will take into consideration.
The current process is that the conduct of former directors of dissolved companies cannot be investigated by the Insolvency Service under the CDDA. This is to be contrasted with the position of directors of companies which have been placed into an insolvency process (liquidation, administration, etc.), who can be subject to investigations under the CDDA following the statutory reports on their conduct, and the reasons for the failure of the business, which are made by the insolvency office holder.
The Bill identifies a few points about the way in which the Director has conducted the business of the dissolved company.
One of these is that the Director allowed or caused a company to be dissolved/ struck off at companies House to get rid of its liabilities and then with a new company carrying on the business of the dissolved company . This is often known a phoenix scenario.
The second point is that the director has used the process of dissolving the company to short cut the process of liquidation. In some cases, there is a valid reason why the directors have not gone down the route of formal insolvency as they have limited funds from which to pay the Insolvency practitioner the fee to place the company int o liquidation.
Finally they want to avoid the liquidator investigating the affairs of the company so that NO action is taken against them under the CDDA 1986
The reason for the introduction of the new Bill is that there is expressed concern by the U.K. Government that directors of companies who have taken out various loans because of Covid may take such an action as to dissolve the company so that they do not have to pay back the loans. This in turn has a financial effect on the public purse.
Its all to do with building business confidence and ensuring that Directors who leave employees and HMRC out of pocket should be punished.
Next Steps
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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