Under new legislation, directors who are found to have dissolved companies as a way of avoiding repayment of government backed coronavirus loans could face disqualification of up to 15 years.

The coronavirus loans were put in place to support businesses during the pandemic but fear is mounting that company directors could abuse the dissolution process to dodge repayment of the loans. This has led to the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, which had its first reading back in May 2021 and was given Royal Assent in December 2021.

Under the legislation, the Insolvency Service will be given the power to investigate the conduct of company directors, including former directors, of dissolved companies. It extends the existing directors’ disqualification regime to the directors of dissolved companies.

The Business Secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

Under previous laws, if the Insolvency Service wished to investigate the conduct of the directors of a company which had been dissolved, that company must first have been restored to the register. The new legislation does away with this costly and time-consuming hurdle by amending the rules to allow investigations of such directors and disqualification proceedings to be brought against them.

The government has made its position clear: dissolving a company is not a way for directors to get out of repaying coronavirus loans or avoid the consequences of their misconduct.

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