Sanctions against dodgy directors have been stepped up considerably this year: long disqualifications are now for the lucky ones, as prison becomes an increasingly favoured option for the Insolvency Service.
This month, a former sole director of a ‘non-specialised wholesale trade’ business was jailed for 10 months. He failed to produce accounting records and refused to co-operate with the Insolvency Service after his company went into liquidation owing more than £200,000 in unpaid tax. Correspondence from inspectors was ignored and the director, who was already subject to a seven-year ban, failed to attend an interview with the Official Receiver when requested.
In April, a Cumbria businessman was sentenced to four years in prison after ignoring his director ban and breaching a bankruptcy order in a housing development fraud which saw a pensioner swindled out of £60,000.
A string of other criminals have been convicted and handed suspended prison sentences in recent months, often accompanied by more than 100 hours of unpaid community work. Many of these are for abusing the government’s Bounce Back Loan (BBL) Scheme, which was rolled out in 2020 to save small businesses at risk from pandemic lockdowns. Closer scrutiny of businesses now unable to repay the loans is leading to action against an increasing number of individuals, not just company directors. The Insolvency Service has been throwing the book at parties who made false applications and, in some cases, were not even trading when they received the funds.
The recent 2023-24 Annual Report from the Insolvency Service shows that Covid loan abuse led to 831 disqualifications, 93 Bankruptcy Restriction Orders (BROs) and 22 criminal prosecutions. The terms of BROs, and recent associated undertakings by individuals for between 10 and 12 years, are unsurprising: limitations on borrowing, serving as a trustee, acting as a director and working in some public sector roles. Breaking these agreements will almost certainly lead to convictions.
Separately, the Insolvency Service is wasting no time launching official investigations into those voluntarily dissolving companies (outside a Creditors’ Voluntary Liquidation) with outstanding BBLs. In theory there is no ‘comeback’ on Directors whose businesses default on BBLs: their personal assets are safe since the loans are unsecured and involve no personal guarantees. The debt is written off once the company is liquidated, so liability doesn’t transfer, provided Directors have complied with their statutory duties.
Government investigators and appointed Liquidators will pick apart a company’s financial record in the run-up to insolvency. There are countless examples of questionable payments and enrichment on the back of BBLs, with some extreme cases well documented. Improper use of these lifelines will almost certainly make Directors personally liable for this outstanding debt.
The Insolvency Service’s tighter grip on directors is revealing wider fraud issues beyond government loan abuse The number of cases sent to the service’s compliance and targeting department has more than doubled to more than 1,000 per month. There is no place to hide.
Individuals and directors facing investigation by the Insolvency Service are urged to engage with authorities at every step to avoid criminal action. Those at risk of personal liability, either from earlier BBL applications or from trading in the run-up to company insolvency, are encouraged to get in touch with us at Buchler Phillips for a free initial consultation.
Written by James Bryan, Restructuring Manager at Buchler Phillips, an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.