On 15 February 2022, new rules surrounding the disqualification of directors of dissolved companies were brought into force in the form of The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act (Act).
The Act grants more extensive powers to the Insolvency Service to deal with company directors who abuse the company dissolution procedure. Previously, whilst improperly dissolving a company was a criminal offence punishable by fine under sections 1104 and 1005 of the Companies Act 2006, the Insolvency Service were not at liberty to investigate and sanction any wrongdoing unless a company was restored to the register. Directors of dissolved companies, therefore, fell outside the reach of the Company Directors Disqualification Act 1986.
As the company reinstatement procedure is often a lengthy and costly process involving the need for court proceedings, offending directors have frequently been able to dissolve their companies to avoid investigation and sanctions, in addition to steering clear of any risk that they were made personally liable for company debts.
The introduction of The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act means that the Insolvency Service can now investigate a director of a dissolved company as well as those still on the register. Consequently, if any wrongdoing is discovered, directors can face disqualification for up to 15 years as well as prosecution. The Act also permits a court to order that a disqualified director of a dissolved company pays compensation to creditors who have been affected by their misconduct.
It is important to note that the introduction of the Director Disqualification Act has retrospective effect. Therefore, misconduct that precedes the Act’s introduction can also be caught, and disqualification can ensue in relation to such wrongdoing. However, there are limitation aspects to consider as any application must be made within three years after dissolution, except under the circumstances permitted by the Court.
Ultimately, the success of the Act will rest on reporting by creditors and other affected parties, as well as the efficiency of the Insolvency Service to mount investigations and prosecute offending directors.
If you have any more questions or would like more information regarding the director disqualification of dissolved companies, you can contact the Dispute Resolution Team below.