UK Targets Debt-Dodging Bosses Of Firms Hit By COVID

By Irene Madongo
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Law360, London (May 13, 2021, 3:16 PM BST) -- Company directors who wind up their businesses to avoid repaying state-backed loans issued during the COVID-19 pandemic and other debts face being banned under draft legislation.

The government's Insolvency Service can use existing legislation to investigate directors of "live" companies or those entering into insolvency. But the government said on Wednesday that it should also be able to investigate bosses whose businesses have already been wound up. It says this would help discourage misuse of the winding-up process and close a legal loophole that allows companies to be dissolved before they pay their debts.

"The process will no longer be able to be used as a method of fraudulently avoiding repayment of government-backed loans given to businesses to support them during the coronavirus pandemic," the government said in a joint statement issued by the Insolvency Service — an executive agency of the Business Department — HM Treasury and the Ministry of Housing, Communities and Local Government.

The measure is part of the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, which was announced on Wednesday.

The Insolvency Service should also be able to ban a company director for up to 15 years under the proposed new law. The penalty is the same as that under existing rules for disqualification if wrongdoing or malpractice is found.

Business Secretary Kwasi Kwarteng said that as life starts returning to normal after the pandemic "we need to restore business confidence, but also people's confidence in business — which is why we will not hesitate to disqualify directors who deliberately leave employees and the British taxpayer out of pocket."

Roger Barker, director of policy and corporate governance at the Institute of Directors, which represents and sets standards for business leaders, said that seeking to dissolve a company should be "a last resort" for company bosses.

"Using company dissolution as a mechanism for the evasion of a director's duties has no place in the governance of a responsible enterprise," Barker said in the statement issued by the government.

The government announced last year that businesses hit by COVID-19 would be given access to state-backed funding through programs such as the Bounce Back Loan Scheme, which enables smaller businesses to get funds more quickly during the crisis.

The assistance issued under the programs reached almost £71 billion ($100 billion), UK Finance, the trade body for the banking sector, said in January. But only two thirds, 63%, of small and midsized companies said they were confident about their ability to repay the loans, according to a February study by technology solutions company Sage, which cited tough economic conditions.

--Editing by Joe Millis.

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