Directors could face punishment for avoid bounce back loan repayments
The government has announced a new bill that will allow HMRC and The Insolvency Service to go after directors who dissolved their companies improperly leaving outstanding debts, including bounce back loans or tax.
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill will allow retrospective investigation and action to be taken against directors and can lead to disqualification and personal liability if they are found to have dissolved their company with outstanding debts.
For the first time, authorities will have the power to investigate company dissolutions and strike offs retrospectively to make sure they were completed properly.
The Business Secretary Kwasi Kwarteng said: “We need to restore business confidence and people’s confidence in business.
“This is why we won’t hesitate to disqualify directors who deliberately leave employees and the taxpayer out of pocket.
“We are determined that the UK should be the best place in the world to do business. Extending powers to investigate directors of dissolved companies means those who have previously been able to avoid their responsibilities will be held to account.”
The sanctions include fines and a disqualification of up to 15 years from being a company director.
First announced in the Budget earlier this year, the measures will be introduced in parliament soon before passing into law.
Chris Horner, Insolvency Director with Business Rescue Expert, said: “Dissolving or closing down a company is the natural endpoint of the business life cycle and can finally occur for many reasons.
“Directors who thought it would be an easy way to avoid repaying bounce back loans or other debts should now be rightly concerned because for the first time, The Insolvency Service and HMRC will be able to investigate the circumstances of their dissolution to make sure it was completed properly.
“Directors who liquidated their business properly have nothing to worry about – it’s those that tried to sneak their dissolutions under the wire that will be anxiously reading the headlines.
“There were over 415,000 company dissolutions in 2020 alone, so there are a lot of potential cases to be investigated almost immediately.
“It will also force directors planning to close down to look at their liquidation options more closely as the proper method to end their business rather than taking their chances with a risky dissolution.
“These measures will ultimately create a fairer, more level playing field and will also be better for the treasury as we expect tax receipts to be higher and more outstanding bounce back loans to be recouped as a result.
“They might have other options available to them but if they are determined to close down then we can let them know the right way to do it from the start.
“We’re also happy to talk to any director that’s nervous about any consequences of their dissolution although the majority will have nothing to worry about.”