Directors of liquidated companies facing longer Director Disqualification periods and even prison
The IS has, for a long time, had powers to investigate (and disqualify) Directors of insolvent (and live) companies. Director Disqualification is (most commonly) a civil law remedy, but the actions of delinquent Directors can also lead to a prison sentence, especially if the offending Director is already serving a disqualification period. In recent months, we have seen the IS really cracking down on such Directors, with longer disqualification periods imposed and an increasing number of prison sentences, in particular for Bounce Back Loan (‘BBL’) fraud where the IS investigate criminally.
In this article we look we look at BBL investigations, where custodial sentences are also on the rise, and a couple of other examples from the IS where prison sentences have resulted.
Disqualifications and prison sentences for BBL fraud and abuse
We have seen a significant increase recently in Directors being investigated for BBL fraud. Each case turns on the facts, and in many cases where we have been instructed, we have been able to convince the IS that the Director(s) involved had not abused the scheme and the IS has abandoned its Director Disqualification investigation.
Numbers
IS figures show that for 2023/24 their investigations into Covid loan abuse produced 831 disqualifications, 93 Bankruptcy Restriction Orders (‘BROs’) and 22 criminal prosecutions.
Prison time is not new for such offences. It is just that we are seeing more of it. Section 13 of the CDDA 1986 sets out that a person acting in contravention of a Disqualification Order or who is guilty of an offence under Section 11 CDDA 1986, which relates to the prohibition on undischarged Bankrupts from being involved in a company, without Permission of the Court, is liable on Criminal conviction or indictment to:
- Imprisonment for not more than 2 years or a fine or both, and
- On summary conviction (in the Magistrates Court) to imprisonment for not more than 6 months or a fine or both.
Two recent IS investigations that resulted in a prison sentence.
As reported by the BBC on 22nd October 2024, this Director of a ‘non-specialised wholesale trade’ business failed to produce accounting records and refused to co-operate with the IS after his company went into liquidation owing more than £200,000 in unpaid tax. The criminal investigation began after he was banned for seven years from being a company Director in 2020, but he failed to engage with the IS’s investigation team, and did not supply the books and records asked of him. He received a 10-month prison sentence.
2. 4-year prison sentence for breaching a Bankruptcy Order
In April 2024, a Cumbrian businessman was sentenced to four years in prison after ignoring his existing 12-year Director Disqualification ban and breaching a Bankruptcy Order in a housing development fraud which caused a pensioner to lose £60,000. Because the Director was bankrupt at the time and also disqualified, he was not allowed to act in the management of a company. He was in fact managing 3 companies whilst disqualified.
Both of the above cases resulted in a prison sentence because the Directors were already disqualified.
Our Comment – Directors beware
The IS closer focus on BBL fraud and associated areas is leading to more disqualifications AND more prison sentences. That will likely increase with the imminent appointment of a Covid Fraud Commissioner. The well-advised Director should talk to specialist Insolvency Solicitors such as us here at NDP.
Article by: Sukhbir Mall, Solicitor and Director at NDP and Richard Shepherd, Senior Solicitor at NDP.
