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

Posted: 14/10/2021

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (the Bill) is, at the time of writing, at second reading stage in the House of Lords and progressing quickly towards becoming law later this year.

The Bill, once enacted, will introduce important changes to the insolvency and director disqualification regime in England and Wales. It proposes changing the current regime and permitting the Insolvency Service to investigate voluntary dissolutions in the same way as if a formal insolvency process was undertaken. There will also be no need to restore the company before an investigation can take place.

The aim of this change is to combat public concerns regarding the abuse of limited liability and the voluntary dissolution process, as well as to respond to a 2018 Government consultation on corporate governance and reform. Particularly, there are concerns that directors can opt to dissolve a company along with all its liabilities and then go on to set up a new company that carries on the same business but without those liabilities – so called ‘phoenixism’.

Furthermore, the Bill backs the Government’s promise to combat COVID-19 fraud and prevent companies using the voluntary dissolution process to avoid paying back loans provided under the Coronavirus Bounce Back Loans Scheme.

It is proposed that the Bill will apply retrospectively, meaning that it could apply to organisations that have been dissolved prior to the legislation coming into force. It would also be possible for directors to be investigated when using the voluntary dissolution procedure, which could have serious consequences for directors if any mismanagement is uncovered following an investigation.

If your organisation is considering using the voluntary procedure to wind up a group company or CIO (including charitable or trading companies) then advice should be sought on the implications of this. It is imperative that directors continue to be mindful of their duties, particularly if the organisation is at risk of insolvency or is indeed insolvent. For example, this question is pertinent when looking at the activities of trading subsidiaries and we often advise clients on the key considerations and necessary legal steps required when considering winding down trading subsidiaries that have ceased trading.

If you have any questions about how the regime may impact your organisation, require further advice on directors’ duties, or are considering winding up your organisation or another group member, then please do get in touch with the Housing Corporate and Governance team for further information.

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Penningtons Manches Cooper LLP