Company Directors Beware! Parliament Debates Extending Current Directors’ Disqualification Regime to Directors of Dissolved Companies

September 21, 2021 Advisory

The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill, which is currently being considered in the House of Lords, contains significant implications for directors of dissolved companies.

The key provisions of the Bill, which if passed is likely to become law in late 2021 or early 2022 and importantly expressly provide that it will have retrospective effect, are that the Insolvency Service will be able to:

  • investigate the conduct of directors of dissolved companies; and
  • bring disqualification proceedings against them under the Company Directors Disqualification Act (CDDA) 1986.

If the Bill is passed, where a Court is satisfied that the conduct of a director of a dissolved company renders that director unfit to be concerned in the management of a company, possible penalties include:

  • disqualification from acting as a director for a period of two to 15 years; and
  • the payment of compensation to creditors.

The breach of a director’s disqualification order can lead to imprisonment for up to two years and/or substantial fines.

Dissolving a limited company is a relatively straightforward and inexpensive process. It can be done voluntarily by payment of a nominal fee plus the filing of a form at Companies House. The Registrar of Companies can also strike a company off if, for example, the company fails to meet its annual filing requirements. There are many legitimate reasons for dissolving a company, but its relative ease has left the process open to abuse, which the Bill seeks to address.

At present, the general position is that the conduct of former directors of dissolved companies cannot be investigated by the Insolvency Service under the CDDA. This is to be contrasted with the position of directors of companies which have been placed into an insolvency process (liquidation, administration, etc.), who can be subject to investigations under the CDDA following the statutory reports on their conduct, and the reasons for the failure of the business, which are made by the insolvency office holder.

The explanatory notes to the Bill have identified three main complaints about the conduct of former directors of companies which have been dissolved:

  • allowing or causing a company to be dissolved, effectively shedding its liabilities, with a new company continuing its business, which is sometimes known as “phoenixism”;
  • using the dissolution process as a short-circuit to avoid the costs and implications of a formal insolvency process; and
  • the avoidance of investigation of conduct under the CDDA.

An impetus for the introduction of the Bill is a concern identified by the U.K. Government that company directors who have taken out Government-backed loans for support during the coronavirus pandemic may seek to dissolve the company rather than repay the loan, thereby causing loss to the public purse. The relevant measures in the Bill sit with Kwasi Kwarteng MP, the Secretary of State for Business, Energy and Industrial Strategy. He has commented: “As we build back better from 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.”

The Bill’s retrospective effect means that directors intending to dissolve their companies will now need to consider whether their conduct would withstand scrutiny in any investigation by the Insolvency Service. 

And if a (former) director of a dissolved company becomes the subject of an investigation by the Insolvency Service, they should take professional advice as quickly as possible to ensure that a full response to any investigation is put forward.


New Precedent Related to 503(B)(9) Changes Landscape for Creditors Seeking Administrative Expense Claims

Portrait photos of Erin Edelman and Elizabeth Grube

Federal Bar Association Bankruptcy Circuit Updates: Third Circuit

In re Rothman , 21-1333 (3d Cir. Nov. 4, 2021). On appeal from the United States District Court for the District of New Jersey (District Court) regarding an order denying Bernard Rothman’s motion for...

Economic Crime (Transparency and Enforcement) Act 2022: Is the U.K. Finally Serious About Fighting Economic Crime?


Federal Bar Association Bankruptcy Circuit Updates: Second Circuit

In re Sears Holdings Corporation, 2021 WL 5986997 (Dec. 17, 2021). The United States Court of Appeals for the Second Circuit (Second Circuit) affirmed the decision of the United States District Court for the...

Supreme Court Restates Duty to Monitor Retirement Plan Costs and Options in Hughes v. Northwestern University


Eleventh Circuit Bankruptcy Decision Marks Significant Implications for Insurance Companies, Their Counsel

News Item

Armstrong Teasdale Handles IP, IT for Manna Pro in Acquisition of Oxbow Animal Health

Courtney Jackson, Saraann Parker and Gabriela Baeza-Stout

U.K. Quarterly Corporate Update, April 2022

Interim Report on Electronic Signing Published by the Industry Working Group The Industry Working Group has published an interim report outlining best practice guidelines on executing a document electronically in England and Wales and...

News Item

Armstrong Teasdale Adds to Intellectual Property, Corporate Teams

Portrait photos of Teresa Arroyo and Jenny Zhang
News Item

David Going, Jeff Wurst Named to 2022 Lawdragon 500 Bankruptcy, Restructuring List

Portrait photos of David Going and Jeffrey Wurst
Contact Us
  • Worldwide
  • Boston, MA
  • Denver, CO
  • Dublin, Ireland
  • Edwardsville, IL
  • Jefferson City, MO
  • Kansas City, MO
  • Las Vegas, NV
  • London, England
  • Miami, FL
  • New York, NY
  • Philadelphia, PA
  • Princeton, NJ
  • Salt Lake City, UT
  • St. Louis, MO
  • Wilmington, DE
abstract image of world map
Boston, MA
800 Boylston St.
30th Floor
Boston, MA 02199
Google Maps
Boston, Massachusetts
Denver, CO
4643 S. Ulster St.
Suite 800
Denver, CO 80237
Google Maps
Denver, Colorado
Dublin, Ireland
Fitzwilliam Hall, Fitzwilliam Place
Dublin 2,
Google Maps
Edwardsville, IL
115 N. Second St.
Edwardsville, IL 62025
Google Maps
Edwardsville, Illinois
Jefferson City, MO
101 E. High St.
First Floor
Jefferson City, MO 65101
Google Maps
Jefferson City, Missouri
Kansas City, MO
2345 Grand Blvd.
Suite 1500
Kansas City, MO 64108
Google Maps
Kansas City, Missouri
Las Vegas, NV
3770 Howard Hughes Parkway
Suite 200
Las Vegas, NV 89169
Google Maps
Las Vegas, Nevada
London, England
200 Strand
London, WC2R 1DJ
Google Maps
Miami, FL
3250 Mary Street
Suite 102
Coconut Grove, FL 33133
Google Maps
Photo of Miami, Florida
New York, NY
7 Times Square, 44th Floor
New York, NY 10036
Google Maps
New York City skyline
Philadelphia, PA
2005 Market Street
29th Floor, One Commerce Square
Philadelphia, PA 19103
Google Maps
Philadelphia, Pennsylvania
Princeton, NJ
100 Overlook Center
Second Floor
Princeton, NJ 08540
Google Maps
Princeton, New Jersey
Salt Lake City, UT
201 South Main Street
Suite 750
Salt Lake City, UT 84111
Google Maps
Salt Lake City, Utah
St. Louis, MO
7700 Forsyth Blvd.
Suite 1800
St. Louis, MO 63105
Google Maps
St. Louis, Missouri
Wilmington, DE
300 Delaware Avenue
Suite 210
Wilmington, DE 19801
Google Maps
Wilmington, Delaware