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Corporate Insolvency and Governance Bill - penalties for abuse

View profile for Stephen Downie
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The new provisions provide a lot of opportunity for abuse by companies and their directors. Indeed, where an insolvency practitioner is appointed as a monitor (to satisfy the court’s concern as to such abuse), they may be liable for any wrongs they commit in office.

As regards directors, aside from the claims they are ordinarily subject to where a company is placed into insolvency, directors may also be personally liable for wrongdoings committed during the suspension period, where they harm creditors’ interests. In such circumstances the court has a wider power to control the company’s affairs (while preserving its going concern status) by making orders in the following terms:

  1. Regulating the company’s management during the moratorium
  2. Ordering the directors to do, or refrain from doing, a particular act
  3. Requiring creditors to make a decision on matters
  4. Ending the suspension period.

These powers are arguably very wide ranging and potentially difficult to implement, if the Relevant Period provided under the Corporate Insolvency and Governance Bill does not continue past 30 June 2020.

Other offences that a director or company secretary may be liable for include fraud, misrepresentation and ultimately prosecution for failures arising in such circumstances. These are in addition to those fiduciary duties a director is already subject to.

Indeed the lifting of the “wrongful trading” risk is only a minor relief for directors, when considering the increased risk presented where a suspension of the winding-up petition is sought by the company.

For most directors, this increased risk is imperceivable, but (as is often the case) the reasonableness of such decision making is often evaluated some years later when such actions are reviewed retrospectively.

If you require any guidance on the Corporate Insolvency and Governance Bill, please do not hesitate to get in touch.