HomeFWJ TakeawayDirector disqualification claimsCompensation orders explainedBounce back loan investigations bring upsurge in director disqualifications

On 15 December 2021, the highly anticipated Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 (“the Act”) was passed. The legislation amends the Company Directors Disqualification Act 1986 so that directors of companies which are dissolved are subject to the same investigation and potential disqualification as directors of live or insolvent companies.

Rise in Company insolvencies coming our way

New data is coming to light regarding the UK economy with all indicators pointing towards a storm of corporate insolvencies. The Insolvency Service has confirmed that between 1 April 2022 and 30 June 2022 company insolvencies were up 81% on the same quarter the previous year.

While data is changing all the time, the universally accepted catalyst seems to be the Covid-19 pandemic which led to companies facing cash flow disruption.  In response to the pandemic, the government set up a scheme which enabled small and medium-sized businesses to access quick and cheap finance in the form of government-backed loans, lent by banks. These loans were called Bounce Back Loans (‘BBLs’).

While the BBL could only be applied for between May 2020 and March 2021, we have started to see data relating to the same.

Obtaining a Bounce Back Loan

To obtain a BBL your business merely needed to be:

  • based in the UK
  • established before 1 March 2020; and
  • impacted by Covid-19

Due to the haste, applicants would ‘self-certify’ that they had met these conditions. Further, applicants would also confirm that the BBL was not being used for personal purposes.

If the above was confirmed by the applicant, businesses would be eligible to borrow between £2,000 and £50,000 with no interest payable for the first 12 months, and 2.5% interest per annum thereafter. The amount lent would depend on the business’s turnover, which again was ‘self-certified’ by the applicant.

Where are we now?

Two years after applications for BBLs opened, a total of 1.5 million loans worth £47 billion have been handed out. However, more than 16,000 business which received BBL have already gone bust, with many more projected to follow. It is estimated by the Department for Business, Energy and Industrial Strategy that as much as £17 billion will be lost as a result of the scheme, with £4.9 billion losses as a result of fraud. The government is keeping a very close eye on matters and publishes a regular factsheet.

To help tackle this, the Insolvency Service has already begun investigating directors who received BBLs but whose companies have subsequently become insolvent. In particular, the Insolvency Service is considering director misconduct relating to:

  • false information provided on loan applications
  • loans used for a director’s personal benefit (in full or in part); and
  • directors dissolving their companies to avoid repaying the loans

Consequences of the new approach from the Insolvency Service

We have found that the Insolvency Service is generally seeking disqualification periods of no less than 7 years but in many cases between 11 and 15 years.

Despite the Insolvency Service very recently beginning its investigations into BBLs, they have already disqualified directors for between 7 and 15 years. Further, we are aware of at least one director who has received a custodial sentence of two years’ imprisonment for taking a BBL that he never intended to pay back.

However, it is not only the disqualification period which directors must consider:

Where directors agree to being disqualified, they are required to offer an undertaking to the Secretary of State which includes a schedule of reasons why they are unfit to be directors. With many cases relating to BBLs, this will include confirming that they have acted dishonestly. This presents two additional problems as:

The Insolvency Service is seeking to claw back BBLs from directors, pursued in the form of compensation orders.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 has also extended the Insolvency Service’s investigatory powers to directors of dissolved companies. We are now beginning to see disqualifications directly as a result of this act and further details of these can be found on the Insolvency Service Government website.

At Francis Wilks & Jones we have considerable experience of director disqualification proceedings and advising directors on the benefits and risks of entering into a disqualification undertaking either generally or as a component of a strategy to remain a director of your current company.

Interested in learning more about this subject? Read our guide on director disqualification and bounce back loans.

Call our director services team today for assistance. We can help, whatever your enquiry.

I would strongly recommend using FWJ for director disqualification matters. Tactically and commercially they played it just right and I am now able to get on with my business life without the worry of disqualification hanging over me.

A director we defended against a disqualification claim

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