Background
On 15 December 2021, Royal Assent was given to the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 (the Act) which amends the Company Directors Disqualification Act 1986. Previously, the Secretary of State could only investigate directors of active companies or companies placed into an insolvency process. For dissolved companies, they would need to apply to the court to restore the company before acting.
What's new?
The Act seeks to prevent the avoidance of creditor payments by directors that dissolve companies without a formal insolvency process.
The Secretary of State can now apply directly to the court for disqualification orders and subsequently obtain creditor compensation orders. This power extends to dissolved solvent companies.
The Act is retrospective in effect and an application for a disqualification order can be made up to three years after a company has been dissolved.
Key takeaways
- Directors who fraudulently obtained 'Bounce Back Loans' (introduced to provide support during the pandemic) and then dissolved their companies can now be effectively investigated.
- Regardless of whether they obtained a Bounce Back Loan, directors should seek advice before dissolving a company that may have liabilities.
- This increased scope of investigative powers will mean Directors' and Officers' Liability insurers will likely see an increase in cases.
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.
