Directors suspected of wrongdoing in 30% of business insolvencies

01 December 2014 -

Number of cases looking into potential dishonesty by senior leaders has risen by 21% in past three years

Jermaine Haughton

Almost a third of directors whose firms collapsed in the past year have been referred to the UK Insolvency Service’s Disqualification Unit for unfit conduct, according to a new study from accountants Moore Stephens. In the 12 months to 30 March 2014, just over 15,400 business insolvencies were examined by insolvency practitioners, and directors at 4,670 of those broke firms – equivalent to 30% of the total – were reported for potential wrongdoing.

Of those 4,671 bosses reported for investigation, the Insolvency Service has started disqualification proceedings against 1,273 in the same period. That reflects a substantial rise in the organisation’s workload: there are 21% more cases than there were three years ago, when 1,031 misconduct proceedings were begun off the back of 5,401 initial reports.

Moore Stephens partner Mike Finch said: “These figures show just how frequently insolvency practitioners are finding evidence that points towards serious misconduct by directors. These are cases where there is strong evidence that a company director has broken the rules to the detriment of creditors such as lenders, suppliers or HMRC.”

Bosses of insolvent firms who are found guilty of poor conduct are liable for disqualification for up to 15 years, the report explains.

Following a series of recent budget cuts to the UK Insolvency Service, some experts suggested that the organisation would be blunted, and that it would no longer be able to properly fulfil its remit of reprimanding directors who lead their firms astray. However, the new figures suggest that those fears were wide of the mark.

Finch explained: “The Insolvency Service has delivered a substantial improvement in the number of disqualification proceedings against dishonest directors. It is important that the funding is there to all of the Insolvency Service to pursue these cases, as disqualifying rogue directors serves as a crucial deterrent – and is vital for ensuring a fair deal for creditors in any insolvency.”

He added: “Having an effective enforcement regime for dishonest directors is in everyone’s interests, and is critical to ensuring that honest business owners can compete on a level playing field.”

For more on these issues, check out CMI’s Checklist guide Managing Finance.