Phil MeekinView Profile
A new study by accounting and advisory network, Moore Stephens, has found that the number of company directors receiving bans for five years or more has reached a six-year high.
Over the course of the last year, the Insolvency Service disqualified 573 directors for five years or more. Bans of five years or longer are starting to be used more and more by the Insolvency Service as they try to tackle the practices of dodgy directors and plan to hand out harsher punishments if directors are found to be directly responsible for the company’s downfall.
A company director will be disqualified because they have been found to be personally liable for any losses incurred by the business, they have traded whilst insolvent or they have been taking part in criminal activity. When appointed, the licensed insolvency practitioner (IP) will investigate the actions of the company director(s) for the three years prior to entering an insolvency procedure.
The Insolvency Service can hand out disqualifications of up to 15 years in the most serious cases. With the Insolvency Service taking a much tougher stance as it tries to crackdown on dodgy directors, they are making use of the options they have available to them to hand out longer bans to try to deter other directors from taking part in activities they shouldn’t be.
As criminal activity usually leads to criminal prosecution, alongside the director ban, the Insolvency Service is concentrating on lowering the instances in which directors are repaying friends and family ahead of their other creditors and using money from their company for their own personal benefit.
They are also working closely with HMRC to help them chase unpaid tax by businesses. As it is relatively easy to prove a tax debt to HMRC, these kind of debts make it much harder for directors to get away with deliberately not paying.
The survey came with a warning from Mike Finch, partner at Moore Stephens, who urged businesses not to break the rules to save the business; “Directors whose companies are in trouble need to make sure they are not tempted to break the rules in a misguided attempt to save jobs. They are more likely than ever to get found out, and to severely damage their future prospects.”
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