Insolvency Update: Proposed new powers for the Secretary of State

On 20 March 2018, the Department for Business, Energy and Industrial Strategy (BEIS) published a consultation paper on Corporate Governance and Insolvency. The purpose of the consultation is to seek views on proposals to improve the governance of companies when they are in or approaching insolvency and to explore options to improve the Government’s investigatory powers when things do go wrong.

In respect of the latter, proposals have suggested extending investigative powers to include dissolved companies, without the need for restoration. Traditionally, where such an action was necessary, an application would first have to be made to Court to restore the Company to the Register, at a direct cost to the applicant.

This relatively simple move, could prevent directors being able to avoid accountability by simply dissolving or allowing companies to be struck off the register, rather than placing them into a formal insolvency process. In particular, the Secretary of State may be given powers to:

1. Require any person to provide such information as may be reasonably requested to allow the Insolvency Service to investigate the conduct and actions of former directors of a dissolved company;
2. Seek an order disqualifying a former director from being a director of any other company;
3. Seek an order that the former director financially compensates creditor(s), where the director’s actions caused identifiable losses; and
4. Seek a prosecution where there is evidence of criminal conduct.

While the above will no doubt prove to be a welcomed change, the Consultation Paper confirms that these new powers will be exercisable only by the Secretary of State (SOS).

This limitation will be disappointing from an Insolvency Practitioners (IP’s) perspective however, the paper suggests that investigations may be carried out by the SOS in conjunction with a larger inquiry connected with an insolvent company, where there is sufficient evidence of wrong-doing.

Where the larger inquiry is being carried out by an IP, it is unclear whether the SOS would work with the IP on a ‘joint taskforce’ basis or whether it would provide authority for the IP to do so on its behalf. In any event, if approved, the proposed powers could become an invaluable tool in the fight against delinquent directors.