Number of directors handed lengthy bans hits six-year high

The number of company directors receiving bans exceeding five years for corporate wrongdoing increased 8% in 2016/17, reaching a six-year high, according to research from Moore Stephens

The Insolvency Service handed out 573 director disqualifications lasting more than five years in 2016/17, the highest figure since 2010/11 and up 8% on 532 disqualifications in 2015/16.

The increasing number of lengthy bans is due to the Insolvency Service taking tougher enforcement action on issues such as:

  • repaying friends and family ahead of other creditors – often HMRC;
  • ‘Phoenixing’ – transferring assets to a new company to avoid repaying creditors;
  • using company money for personal benefit; and
  • keeping a company trading while unable to pay its debts.

Mike Finch, partner at Moore Stephens, comments: ‘The Insolvency Service is now tougher than ever on directors they can prove have broken the rules and left creditors out of pocket.This is particularly the case where the taxpayer is left short-changed by a company failing to pay its tax bills. Unpaid debt to HMRC is very easy and cheap to prove, meaning people are much less likely to get away with wrongdoing.

‘Directors whose companies are in trouble need to make sure they are not tempted to break the rules in a misguided attempt to save jobs. They are more likely than ever to get found out, and to severely damage their future prospects.’

Director disqualifications can be up to 15 years for the most serious cases and prevent an individual from being involved in the formation or management of a company.

HMRC background note:

Most businesses pay their taxes, but when a business goes under, the public purse may be left with large irrecoverable tax debts. HMRC, like any other creditor, has a duty to work with insolvency practitioners to work out whether the directors acted correctly at all times.

From 6 April 2012, HMRC can require employers to pay a security where there is serious risk, based on past behaviour that they will not pay their PAYE or Class 1 NICs.

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