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HMRC continues the battle against using strike-offs to dodge debt…

With the dangerous position that many company directors now face because of the coronavirus pandemic, it is no surprise that countless businesses are facing the tough decision of whether they can stay open. Whilst support such as the CJRS, SEISS and CBILS and Bounce Back Loans are available, directors still feel that they will struggle to stay afloat despite the easing of restrictions. 

Along with the headache that comes with formal insolvency cases, directors can also be put under the spotlight for investigation regarding their conduct. If found guilty of misconduct, Directors can face penalties such as being made liable for company debts or being disqualified from acting as a Limited Company Director for up to 15 years. To get around these risks, companies opt to dissolve the company (rather than initiating the formal insolvency process 

Striking-off 

Dissolving a company through the process of striking it off is not classed as a formal insolvency procedure and, if successful, allows directors to avoid investigation. The process was designed for companies who are still solvent (able to pay all their liabilities and debts) and haven’t been trading for the last 3 months.  

The Government is now concerned that directors will use the striking off process in order to avoid repayment of CBILS or Bounce Back Loans and have proposed a new law to help prevent this. The law will prevent directors from dissolving companies with active liabilities, however, it is not limited to just that. The Insolvency Service will also have the power to investigate companies that have already been dissolved but had an outstanding Government-backed coronavirus loan. 

The law has just had its first Parliamentary reading and, if successful, will come into effect later this year.  

These changes appear to be the latest in a series of strategies to prevent fraud by companies in relation to the Coronavirus business support. 

Sam Jacka

Author Sam Jacka

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