Directors of dissolved companies can now face disqualification proceedings

Recently, royal assent was given to the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 (“the Act”). The Act extends the Insolvency Service’s powers to investigate directors who have dissolved their companies to see if disqualification proceedings should be brought against them.

Prior to the Act coming into force, the Insolvency Service would only be permitted to investigate former directors if the Company had gone through a formal insolvency process (e.g. liquidation or administration) and following the receipt of a “conduct report” by the Liquidator or Administrator of that company.

Commenting on the new legislation, Business Secretary Kwasi Kwarteng, stated “These new powers will curb those rogue directors who seek to avoid paying back their debts, including Government loans provided to support businesses and save jobs. The Government is committed to tackle those who seek to leave the British taxpayer out of pocket by abusing the covid financial support that has been so vital to businesses”.

The new legislation amends section six of the Company Directors Disqualification Act 1986, which gives the Insolvency Service the power to commence disqualification proceedings if the conduct of the former director of that company “(either taken alone or taken together with his conduct as a director of one or more other companies or overseas companies) makes him unfit to be concerned in the management of a company”.

A director who is found to be “unfit” can be disqualified for a period of between two and  fifteen years. Additionally, the court can make a compensation order if the director is subject to a disqualification order or undertaking and their conduct has caused a quantifiable loss to one or more creditors of a company.

For full details about disqualification proceedings, disqualification undertakings and compensation orders, please visit our dedicated webpage.

For further information or to discuss a matter further, please contact Adina-Leigh Collins or Bimal Kotecha, our specialist solicitors or contact the Litigation department on 020 8858 6971.