New Powers to Disqualify Directors of Dissolved Companies on the Horizon

The changes proposed by the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, once implemented, will have a fundamental impact on directors who previously thought they could slip under the radar of insolvency investigations by closing down their companies using the voluntary dissolution route at Companies House rather than opting for a formal liquidation process.

What's in the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill?

The new proposed legislation seeks to extend powers to investigate the conduct of company directors to include former directors of dissolved companies, with the aim of addressing public concerns about the abuse of limited liability and the voluntary dissolution process.

The director disqualification regime in force at present concentrates on directors of companies and members of LLPs which enter into a formal insolvency process such as liquidation or administration. The regime at present does not require any investigation into or accountability for directors of companies who opt for a voluntary dissolution route at Companies House using form DS01 or struck off by the Registrar of Companies.

If enacted, the Bill will amend certain provisions of the Company Directors Disqualification Act 1986, introducing new powers such as:

• the Secretary of State and the Official Receiver will be able to investigate the conduct of former directors of dissolved companies
• the disqualification regime will be extended to include former directors of dissolved companies
• the Secretary of State will be able to seek compensation where a former Director of a dissolved company's conduct has led to losses to creditors.

The Bill as drafted suggests that the new powers are intended to have retrospective effect, meaning that they could be used for companies dissolved prior to the legislation being enacted.

How Does the New Bill Affect Company Directors?

The proposed changes mean that it is more important than ever for directors looking to cease trading to take advice at an early stage to ensure the company is closed down in an appropriate manner. Taking advice early may help directors better understand the prospect of any personal liability being attached to them and identify ways to mitigate the risk of that happening.

Professional advisors should also be aware of these proposed changes if any of their clients are considering dissolution or have recently been dissolved and are concerned about the retrospective element of the Bill.

The Second Reading of the Bill in Parliament is scheduled for 15 June 2021. We will continue to keep you updated of any developments as the Bill progresses through Parliament.

If you have any queries about any of the above, please do not hesitate to contact Ambuja Bose (07469 850886) or Rachel Kelsey (020 7665 0993) in our Insolvency & Restructuring team. Alternatively, complete the form below.