Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Written evidence submitted by Anton Smith, Partner, Ashton Bond Gigg solicitors (RDDB01)

Submission - Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

The reforms regarding director conduct are misguided. The fact that the company has been dissolved improperly indicates that there should have been a liquidation in which a liquidator could investigate both director conduct but also the possibility of recoveries on behalf of all creditors, including claiming money from the directors or third parties using the Insolvency Act 1986.

Improper dissolution is already a criminal offence (see Companies Act 2006) and improperly dissolved companies can already be restored and liquidated at the behest of a creditor using the winding-up petition procedure. In every case where HMRC is a creditor it could present such a petition, causing the directors’ conduct to be investigated by a liquidator, alongside a proper investigation of all director conduct for the purposes of disqualification. Notice of intended dissolution is required to be given to all creditors, who can then prevent the process by wiring to Companies House.

The Registrar of Companies can already pursue the criminal proceedings against directors who abuse the dissolution process via the magistrates’ court, but never does and the ability to do so is not well publicised. That is more of a disincentive against bad dissolutions than the prospect of disqualification arising from (presumably) a liquidation of a different company. It is far from clear how a single dissolution alone would result in a disqualification and it may result in lots of other worse conduct, meriting a much longer disqualification, going undiscovered and therefore unpunished, with creditors, including HMRC, missing out on recoveries.

This reform will not change director conduct or improve the lot of affected creditors, whereas the existing tools for policing bad dissolutions (see above) will if used properly and publicised. The possibility of disqualification is no more disincentive than what the law currently provides for, which is apparently little deterrent because it is not publicised. Applying the current controls properly, putting dissolved companies into liquidation and publicising that new policy will be a far more effective deterrent in my view. That requires no new legislation at all.

Ultimately focusing on preventing directors who abuse the dissolution process from being directors in the future (even for a few years, because they are disqualified) does nothing to address the harm that illegitimate dissolution may have concealed and is of little deterrence. From the director’s point of view, which is likely to be the greater concern – the mere possibility of disqualification in the future or the likelihood of a full liquidation and investigation of their conduct and how they company’s money has been spent (potentially leading to claims against them brought by a liquidator) plus a fine in the magistrates’ court?

By way of background, I am a solicitor specialising in insolvency law, who has advised insolvency practitioners and directors for over 20 years about how to deal with insolvent companies and also regarding the company director disqualification process. This email is written in a personal capacity and is not the view of or on behalf of my law firm.

Yours sincerely

Anton Smith, Partner
Ashton Bond Gigg solicitors

June 2021

 

Prepared 7th July 2021