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The Directors’ disqualification bill

New legislation that applies to all companies and their directors is set to go live soon. The Directors’ disqualification bill carries potentially heavy penalties and will have ranging and lasting implications for the accounting, insolvency and wider financial industry.

What is it?

The government is finalising new legislation that takes direct aim at company directors trying to avoid an independent review of their actions in the period leading to a company’s failure.

The focus is to close a loophole whereby directors of insolvent companies attempt a strike-off of their company at Companies House rather than using an appropriate insolvency solution.

The strike-off process was designed to close a company that is no longer trading and has no active liabilities. It is not appropriate for insolvent companies that have ceased to trade and are left with outstanding debts that they are unable to pay.

Why do some directors of insolvent companies attempt strike-off?

As the strike-off process is not classed as a formal insolvency procedure, it does not involve an independent review of the actions of directors in the period leading to failure.

When is this happening?

The new legislation has already had its first reading in Parliament and looks set to become law later this year.

Why is this happening now?

Due to the scale of Government support provided to many companies during the pandemic, there is now a concern that some company directors will try to avoid repaying government-backed funding, such as CBILS or Bounce Back Loans.

What are the implications?

If the law is passed, directors will be prevented from dissolving companies with active liabilities. Furthermore, the Insolvency Service will have the power to retrospectively investigate companies, and their directors, that have used the strike-off method but still have government-backed loan payments outstanding.

Should directors fear speaking to an insolvency practitioner?

Directors have nothing to fear from seeking our support. As a profession, we are here to help directors and other stakeholders to rescue the situation to get the best outcome possible for all those affected.

Depending on the appropriate solution, we may have to sense check that the decisions taken by directors in the period leading to a company’s insolvency were reasonable. In our experience, almost all directors have done their absolute best, acted in good faith and have nothing to fear.

How can Bailey Ahmad Business Recovery help?

If you know any businesses who may need help finding a solution for a financial problem, be that recovery, restructuring, insolvency or restarting, please get in touch with us today.

The sooner they seek help, the more options they will have. All consultations are free, confidential and with no obligation.

We will listen, take the time to understand the situation, and offer simple, professional advice so they can plan their next steps with confidence.