Bans and jail for directors dissolving insolvent companies

In February 2022, the Dissolved Companies Act granted the Insolvency Service new powers to investigate directors of dissolved companies without restoring them.

Recently, the Insolvency Service has enacted those new powers, issuing directors bans for those who’ve dissolved insolvent companies and even prison sentences for directors they suspect of Bounce Back Loan abuse or fraud.

The Insolvency Service exercises its new powers

The Insolvency Service, having been granted new powers last year, have conducted investigations into companies that dissolved with outstanding Bounce Back Loans or who fraudulently applied for loans.

The director of a Birmingham-based company received an 11-year ban for claiming the full £50,000 offered by the BBLS before transferring the funds to their personal bank account and dissolving the company.

Crucially for the Insolvency Service, the director dissolved the company after this transfer without ceasing to trade for the three months required before dissolution, and with the Bounce Back Loan’s full amount needing repaying.

Something similar happened to a haulage company director from Stanwell, who received a six-year directors disqualification, a 12-month jail sentence, and had to repay the £50,000 after fraudulently applying for a Bounce Back Loan.

In two separate incidents in Oldham and Kings Langley, two directors falsely claimed tens of thousands in COVID support loans, totalling £69,000. Both received director disqualifications which, when combined, came to 22 years.

These examples prove the Insolvency Service is willing to enact its new powers, with hefty fines, director bans, and criminal penalties for those found guilty of wrongdoing.

Applying for dissolution

Normally, directors would dissolve a company if it is solvent and free of debt. Before dissolving, the company shouldn’t have any legal proceedings or have traded for three months.

Directors should also:

• Inform creditors and interested parties (shareholders, employees etc.).
• Deal with all employment liabilities (PAYE, outstanding wages, holiday pay, National Insurance Contributions and redundancy pay).
• File all remaining statutory returns to HMRC and Companies House.
• Close the company’s bank accounts.

Dissolving a company

What if a director dissolves an insolvent company?

Trying to dissolve a company with outstanding debts, legal proceedings against it, or without having ceased to trade for three months can result in creditors objecting to the dissolution. Attempting to dissolve a company with a Bounce Back Loan will likely lead to the loan’s provider objecting and, as demonstrated by the previous examples, incur action from the Insolvency Service.

If you want to dissolve a company, you should ensure it is solvent and able to repay its liabilities when they fall due. Dissolving a company without enacting the necessary steps can, as mentioned, lead to action from the Insolvency Service.

If you want to dissolve your company but are unsure whether that company is solvent or insolvent, you should speak to us as soon as possible. We can assess your company’s situation, and our initial advice team can provide free, impartial, confidential advice with no obligation, pointing you in the right direction to achieve your desired outcome.

Summary

Last year, the Insolvency Service received new powers allowing them to investigate directors of dissolved companies without restoring the company. With these powers, they’ve recently taken action against directors who’ve attempted to dissolve their companies without repaying outstanding amounts, such as Bounce Back Loans. Directors who haven’t ceased trading for three months and/or fail to notify creditors and members prior to dissolution have also faced action, including fines, director bans, and even prison sentences.

Directors wishing to dissolve a company should ensure it is solvent and without any outstanding legal action and notify the relevant parties.

If you’re unsure whether your company is solvent or insolvent, contact us as soon as possible so we can discuss your situation and work towards finding the best possible solution.