In March 2018, the Department for Business, Energy & Industrial Strategy (BEIS) published a consultation document on insolvency and corporate governance. Among other proposals, they are looking into providing greater powers of investigation into the conduct of directors of dissolved companies following strike-off.
Strike off is the process by which a company is removed from the register at Companies House. It ceases to exist as a legal entity and any assets it still owns at the date of dissolution go to the Crown as “bona vacantia” (property with no legal owner).
Strike off should not be used as a way of avoiding creditors – it generally doesn’t work, since creditors can object to the strike off, and directors are at risk of being seen to be in breach of their fiduciary duties, which can have severe consequences.
What is being proposed?
At present the Secretary of State has two investigative powers: the power to investigate live companies under the Companies Act 1985 and the power to investigate the conduct of directors of insolvent companies under the Company Director Disqualification Act 1986.
The current legislative framework does not, however, allow for the investigation of the conduct of directors whose companies have simply been dissolved, either via a voluntary or a compulsory striking off application. The only course of action currently would be to restore the company to the register first – which can be a costly process.
The Government is therefore considering whether the Secretary of State should have the power to investigate the conduct of directors of companies which have been dissolved, and to take action against former directors who are found to have acted in breach of their legal obligations. In particular, the areas for further investigation by the Secretary of State would be to:
- Require any person to provide such information as may be reasonably requested to allow the Insolvency Service to investigate the conduct and actions of former directors of a dissolved company;
- Seek an order disqualifying a former director from being a director of any other company;
- Seek an order that the former director financially compensates creditor(s), where the director’s actions caused identifiable losses; and
- Seek a prosecution where there is evidence of criminal conduct.
Extending the powers of the Insolvency Service to take action against former directors of a dissolved company is aimed at ending the abuse of the dissolution process, as a means to avoid dealing properly with insolvent situations.
With over 400,000 company dissolutions a year, the aim will be to allow the Insolvency Service to target appropriate cases, without imposing further restrictions for directors who legitimately want to dissolve their company.
The new proposals would complement the existing powers to investigate and would be triggered when a complaint is received by the public, a creditor, and government department or in connection with an existing live investigation.
If your clients need advice around strike off or a formal insolvency solution, then Bridgewood can help. For more information, please don’t hesitate to contact me on 0115 871 2921 or by email firstname.lastname@example.org.
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