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New powers to tackle unfit directors of dissolved companies

The Insolvency Service is to be given powers to investigate directors of companies that have been dissolved. 

The move by the UK government is designed to close a legal loophole and act as a deterrent against the misuse of the dissolution process.

This means it will no longer be able to be used as a method of fraudulently avoiding repayment of government-backed loans, which were given to businesses to support them during the Covid-19 pandemic.

The extension of the power to investigate also includes the relevant sanctions such as disqualification from acting as a company director for up to 15 years.

Additionally, the measure - part of the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill - will help to prevent directors of dissolved companies from setting up a near identical business after the dissolution, which often leaves customers and other creditors unpaid.

Business secretary Kwasi Kwarteng said: “We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”

This bill also delivers on the commitment to rule out Covid-19-related material change of circumstances business rate appeals. This is due to the fact that market-wide economic changes to property values can only be properly considered at general rates revaluations.

To support this, the government is providing £1.5bn to sectors that have suffered most economically over the pandemic, supporting businesses in England in the “fastest and fairest way possible”.

Dr Roger Barker, director of policy and corporate governance at the Institute of Directors, said: “Although corporate dissolution may be inevitable in some cases, it should only be used as a last resort – after all other realistic avenues for protecting the interests of stakeholders have been exhausted. Using company dissolution as a mechanism for the evasion of a directors’ duties has no place in the governance of a responsible enterprise.”

The measures in the bill included are retrospective and will enable the Insolvency Service to also tackle directors who have inappropriately wound-up companies that have benefited from Bounce Back Loans.

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