Crackdown on Reckless Directors

Following Royal Assent of Finance Bill 2019/20, the government has announced that directors and other persons involved in tax avoidance, evasion or phoenixism (a minority of directors who deliberately dodge debts by dissolving companies then starting up a near identical business, with a new name) will be jointly and severally liable for company tax liabilities, where there is a risk that the company may deliberately enter insolvency.

Directors who dissolve companies to avoid paying workers or pensions could face hefty fines or be disqualified from running a business for the first time.

The government is also to press ahead with new plans to safeguard workers, pensions and small suppliers when a company goes bust:
• directors who have dissolved companies to avoid paying workers or pensions could be disqualified or fined by authorities for the first time
• struggling companies to be given more time to rescue the business and help safeguard jobs
• boardrooms to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes.
Under the shake-up, directors may face investigation if they try to escape paying a dissolved company’s debts to their own staff and creditors. The Insolvency Service will be able to fine directors or even have them disqualified.

These measures are being put forward as part of the government’s response to the corporate governance and insolvency consultation, launched in March this year.