Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill moves through House of Commons

A bill that extends the existing director disqualification regime to include former directors of dissolved companies has reached the reporting stage of its journey into UK legislation.

At present, under the Company Directors Disqualification Act 1986, the power to disqualify directors only applies to a company that has become insolvent. If a company is dissolved before this occurs however, it is difficult for the Insolvency Service to investigate and if appropriate, seek to disqualify directors who have abused this loophole. This is because the company in question would need to be restored to the register before any powers of investigation may be invoked – something that is expensive to achieve and historically rarely accomplished: In 2019, of the 529,680 companies that were dissolved, less than 35 were later restored.

As the ongoing COVID-19 pandemic sees an increase in the number of businesses closing their doors (a reported rise of 25% between January and March 2021 over the same period in 2020), there has been concern that directors may be abusing the dissolution procedure to avoid repaying Government backed loans given to them during the pandemic. In an effort to close this loophole, the Secretary of State for Housing, Communities and Local Government Rt Hon Robert Jenrick MP has sponsored the new Bill, which proposes to “make provision about matters attributable to coronavirus that may not be taken account of in making certain determinations for the purposes of non-domestic rating; and to make provision in connection with the disqualification of directors of companies that are dissolved without becoming insolvent.”

In 2018, the Insolvency Service estimated that there may be some misconduct present in 1% of all dissolutions, potentially representing 5000 companies of the approximately 500,000 companies dissolved each year that fall outside of the current disqualification regime. This Bill is not predicted to meet significant resistance through parliament, and it is feasible that the Bill could enter legislation by the end of the year.

To read the briefing paper on the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill 2021-22, please click here, or to view the Bill as introduced, click here.