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Five year director bans hit six year high

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

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 last year, the Insolvency Service disqualified 573 directors for five years or more. Bans of this level of duration are making more appearances in action by the Insolvency Service, as they attempt to tackle wrongful actions of directors which may lead to the downfall of a company.

Why would a director face disqualification?

Company directors face disqualification when it is ruled that they have acted in a way that is unlawful, have traded whilst insolvent, or have been personally liable for losses incurred by the business. When a licensed insolvency practitioner (IP) is appointed as administrator or liquidator to a company, they will investigate the behaviour of a company’s directors over the three years prior to their appointment. It is the findings of such investigations that lead to ‘director bans’ being enforced.

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The Insolvency Service can hand out disqualifications of up to 15 years, depending on the severity of the case. With the service taking a tougher stance on these kinds of behaviours, it is making use of longer disqualification periods in order to deter directors from behaving in a way that may see their company, or its creditors, damaged.

The Service is also working closely with HMRC to recoup tax that has gone unpaid by companies. It is relatively easy to prove the existence of tax debt to HMRC, and it is becoming tougher for directors to get away with deliberately not paying.

Warning for company directors:

Mike Finch, partner at Moore Stephens, who carried out the survey, gave company directors a stark warning. He said: “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 be found out, and severely damage their future prospects.”

It is crucial that company directors recognise when their company is facing financial difficulty, and understand the signs of insolvency. Failing to do so may lead to wrongful action being committed even when this is not intended or understood for what it is. Speaking with insolvency professionals at the earliest possible opportunity can make an enormous difference to the state of your company. If the worst does come, it is crucial that you have done all you can to control the situation prior to this.

If your business is in trouble, make sure you get the help and advice you need and contact Wilson Field on 0800 901 2475 to chat to our friendly, professional advisers.

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