10. Disqualification
Disqualification
This section contains content published after 1 January 2020.
50. Changes to the Director Conduct Reporting Service (DCRS)
On 12 July 2021, there will be a new release of DCRS that will affect the way that users navigate around a conduct report and provide new functionality. A newsletter detailing the changes has been sent to all registered users of DCRS.
A summary of the changes are:
Overview page
When a user selects a case from their dashboard, they will now be taken to an overview page for that case, which will show whether each section has yet to be started, is in progress or completed.
Improved Navigation
The overview will contain links to each section of the form so a user can go direct to a section rather than needing to work through each page in turn as at present. Each page will have options to complete and continue to next section, save and return to overview, go back to overview without saving or go back to the previous section.
Preview page
There will be a link from the overview page to preview the completed sections of the form.
Print option
Once the form has been fully completed, a print option will appear on the overview page so that users can print a completed version of the form. If users want to print from their submitted case list, they will still need to go through their browser print option.
Submit button
The submit button will now be on the overview page. When the form is fully completed, a message will appear asking the user to confirm the information provided on the form is correct to the best of their knowledge. Once this has been ticked to confirm, the submit button will appear.
Any enquiries regarding this article should be directed towards email: DCAS@insolvency.gov.uk
The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 received Royal Assent on 15 December 2021. You can read the press notice here. The Act extends the provisions of the Company Directors Disqualification Act 1986 to allow the Insolvency Service to investigate the conduct of directors of dissolved companies and, where appropriate, bring disqualification proceedings and seek compensation orders on behalf of the Secretary of State.
We have now published information about dissolved companies on 188体育. This includes information about when the Insolvency Service might investigate.
In addition, we have updated our main complaint portal Complain about a limited company - 188体育 so that the public can now complain to us about dissolved companies.
Where Insolvency Practitioners receive complaints about companies that have been dissolved, without first entering into formal insolvency proceedings, they may wish to refer the complainant to this guidance and the usual reporting tool.
If any serious matters of concern relating to dissolved companies come to an Insolvency Practitioner鈥檚 attention during their administration of a case, we ask that the Insolvency Practitioner uses the usual reporting tool to report this. If the conduct is connected to an insolvent company, please make this clear and provide both the company name and NCL reference number.
Any enquiries relating to this article can be sent to intelligence.insolvent@insolvency.gov.uk.
Due to a technical issue, the Insolvency Service had to suspend the 鈥淐ontact鈥� option on the Director Conduct Reporting Service (DCRS) in August. We thought that the issue had been resolved and reinstated the 鈥淐ontact鈥� option in December.
Unfortunately, the resolution has not been successful and the 鈥淐ontact鈥� option is now diverted to the Insolvency Service website home page.
Therefore, if you need to contact the Insolvency Service regarding DCRS, either for general matters, to provide new information or to request additional time to submit a report, please email DCAS@insolvency.gov.uk
If your contact is related to a case, please make sure you provide details of the case name and NCL reference number.
Any enquiries regarding this article should be directed towards email: DCAS@insolvency.gov.uk
Misuse of the various COVID-19 Government financial support schemes, and the Bounce Back Loan scheme in particular, currently make up a high proportion of the misconduct being targeted for investigation. In Dear IP Chapter 29, articles 38 and 48 provide information about how office-holders should report potential abuse of these COVID-19 support schemes and the potential indicators of abuse of these schemes. Those articles provide a helpful reminder of what to report and how this can be done.
This article sets out a new process the Insolvency Service is introducing, and the assistance of office holders is greatly appreciated in implementing that.
Nature of abuse
As at 31st March 2022, the Insolvency Service has not published official statistics on the number of director disqualifications obtained in respect of COVID-19 support scheme abuse. Although the total number of disqualifications obtained is not available yet, it is worth noting that these cases are resulting in mid to high bracket periods of disqualification, and cover a range of misuse of support funds and inaccurate applications.
To illustrate the types of misconduct identified here are some case examples:
Example A 鈥� 1 director, 3 companies, 3 BBLs of 拢50,000 with no evidence of any company trading.
Mr A was the sole director of 3 limited companies. Mr A caused each of the companies to obtain a 拢50,000 Bounce Back Loan when there is no evidence that any of the companies traded and therefore, they were not eligible for the loans. A 13-year disqualification undertaking was accepted by the Secretary of State. A decision not to pursue a Compensation Order was made as the office-holder is seeking recovery.
Example B 鈥� 2 directors, 2 companies, 2 BBLs of 拢50,000 obtained but records indicate turnover was over-estimated on both applications.
Mr B applied for a 拢50,000 BBL on behalf of Company A declaring on the application form that the company had a turnover of 拢200,000. Records indicate that Company A鈥檚 actual turnover was no more than 拢7,600 and as such it was not eligible for a BBL of any amount. Furthermore, there was no evidence to support the director鈥檚 account of the money being used for the economic benefit of the company. An 11-year disqualification undertaking was accepted by the Secretary of State.
Mr C was also a director of Company A and was shown to have either caused or allowed the above misconduct. Furthermore, as sole director of Company B he caused the company to apply for a 拢50,000 BBL declaring on the application form that Company B had a turnover of 拢200,000. Company B鈥檚 accounts for the year ended 31 January 2019 show turnover over 拢37,350 which would make Company B entitled to a BBL of no more than 拢9,743. In addition to this, Mr C also failed to provide evidence to demonstrate that the funds were used for the economic benefit of the business. A 10-year disqualification undertaking was accepted by the Secretary of State.
A decision not to pursue a Compensation Order against either director was made as the office-holder has made recoveries against both parties.
New process
The Insolvency Service has identified an opportunity to improve the targeting and investigation of cases where potential misuse of one or more Government backed COVID-19 support schemes is flagged by the office-holder.
In these cases, a standard enquiry letter will be issued to the office-holder as part of the initial review of the case.
The information sought in this letter will enhance case targeting decisions by ensuring the Insolvency Service has the fullest possible summary of the circumstances surrounding the obtaining and disposal of funds through the support scheme(s). This is preferable to opening an investigation simply based on a company having obtained funds from a support scheme, to then establish there is no misconduct associated with that action. The information gathered through these initial enquiries ensures cases can be prioritised and resources can be used effectively.
The standard enquiry letter seeks to establish what support scheme(s) the company accessed, details of the amount received, dates of applications, eligibility for the scheme and evidence of overstatement of turnover.
The enquiries also seek to identify if any support scheme funds were paid to the director(s) or any connected party, what explanations the director has given for how the funds were used, and if the director has since paid money into the company.
Further questions seek to establish if any recovery action is being taken, what level of ongoing trading activity there has been since the support scheme funds were received, and if repayments towards any support scheme funds have been made.
Office-holders will also be asked to provide company bank statements and any bank analysis undertaken.
Through experience gained in investigating these types of cases the Insolvency Service has found that establishing this information is crucial to the success of an investigation. Obtaining it as early on in the process as possible will make the targeting and progressing of investigation cases more efficient. Officer-holder support in providing this information is a valued part of the process. Many of these cases exhibit blatant removal of support funds paid soon after receipt onwards to directors and/or associates. Commonly, office-holders are receiving little explanation for these payments. The Insolvency Service is monitoring how many cases require compensation action should office-holders not make recoveries.
Queries regarding reporting potential misconduct and the standard enquiry letter may be sent to: DCAS@insolvency.gov.uk
The Insolvency Service will be making changes to DCRS, with an expected date of delivery on 3 October 2022. Final confirmation of the date and time for the release will be displayed on the DCRS landing page during the week before delivery.
Changes
A new section will be added to the form regarding financial support schemes and abuse of the schemes or misuse of funds. This section will allow users to more easily report abuse of Covid support schemes as well as other financial support.
Changes are also being made to the Company Director Summary section. When moving through the form or navigating to that section, the first page will now be an overview where all added directors can be viewed and new ones added. This page will also include the option to add a corporate director and there is a new question set for this type of director.
DCRS navigation and the preview page have been amended to take account of these changes.
Any enquiries regarding this article should be directed towards email: DCAS@insolvency.gov.uk
The Insolvency Service has begun sharing information with the relevant office holders about corporate entities that received Bounce Back Loans (BBLs) or other support under the Government鈥檚 Covid support measures in 2020 and 2021. The purpose of the information provided is to assist the office holder by making them aware that the corporate entity has received assistance from a Covid support scheme. We expect this to be useful in instances where this information has been difficult to obtain, or where it has been deliberately concealed from the office holder.
Reporting requirements and indicators of misconduct
When reporting misconduct in relation to a Covid Support scheme, there needs to be clear evidence indicating that the corporate entity may have either made a false application, for instance inflated turnover figures for the purpose of a loan, or that the funds have not been used for a legitimate business purpose. Other indicators of misconduct could include obtaining multiple Covid support scheme loans, there being no evidence of an entity being established and actively trading at 30 March 2020, and there being no evidence that the business was impacted by the coronavirus.
When considering the turnover of a company in relation to the loan application, office holders will wish to be aware that this should be for the period between 1 January 2019 and 31 December 2019. Although this may not be in line with accounting periods, some assessment can be made from income paid into the company bank account, and/or where trading commenced later in 2019 or early 2020. Using accounts with a period ending from the latter half of 2020 would not be appropriate as by that time turnover would have been impacted by the pandemic.
The existence of an outstanding loan at the point the corporate entity entered insolvency proceedings is not enough in itself to constitute misconduct if the loan application and the use of the funds were legitimate. Such cases would not need to be reported.
Reporting suspected misconduct
When reporting suspected misconduct in respect of a Covid support scheme, office holders should do this using section 13 of the Director Conduct Report form (Finance Support Schemes) which has an option to include Covid support schemes. Office holders should no longer use section 12 (Other Investigations) to report misconduct relating to Covid support schemes.
Where an office holder becomes aware that the corporate entity received a Covid support scheme, and identifies potential misconduct in relation to this scheme after they have submitted their Director Conduct Report, they should report this as new information using the contact option at the bottom of each page in the Director Conduct Reporting Service. Users will need to be logged-in to use this facility.
Any enquiries regarding this article should be directed towards email: intelligence.insolvent@insolvency.gov.uk
The Insolvency Service is currently working on some changes to the conduct report questions in the Director Conduct Reporting Service (DCRS).
The purpose of most of these changes is to obtain more information at outset so that the Insolvency Service can make a more informed decision based on the report and remove the need to request as much information about these matters after the report has been submitted, thus removing the need to revisit cases for both you and your staff and for the Insolvency Service.
Although a release date has not been finalised yet, the release of the new questions is planned during the summer. Further information regarding the release will be provided when the date is finalised.
The question relating to whether a company is registered overseas will be moved from Section 3, Director Details, to Section 2, Company Details, so that this question now only needs to be answered once, rather than multiple times if there is more than one director.
The question relating to the director benefitting directly or indirectly in an unreasonable or excessive manner will be moved from Section 3, Director Details, to Section 4, Company Insolvency, and amended slightly so that it asks if any director has benefitted. This will then be followed by further questions asking in what way a director benefitted, the period over which those benefits were received, and the sums involved. Each question will have a variety of options to choose from.
Section 4, Company Insolvency, will see the inclusion of an additional sum in the range of answers for the question relating to the company deficiency. The range 拢50,001 to 拢100,000 will be split into 拢50,001 to 拢75,000 and 拢75,001 to 拢100,000.
In Section 8, Director Conduct 鈥� Tax Affairs, the answers to the question about the percentage of unsecured liabilities that is made up by HMRC debt will be changed. The new options will be 50% or less, 51 to 75% and over 75%.
Finally, there will be changes to Section 13, Director Conduct 鈥� Financial Support Scheme. Where Covid Support Scheme is selected, this will open a further question to identify if this was a Bounce Back Loan (BBL) and if answered yes, further questions about the BBL will open for completion. These questions will ask for the information currently requested following the submission of the conduct report.
There will also be a change to the range of amounts in answer to the question on how much funding was received. The 拢10,001 to 拢25,000 will change to 拢10,001 to 拢15,000 and 拢15,001 to 拢25,000.
Enquiries regarding this article may be sent to:
Michael.Ashford@insolvency.gov.uk or Intelligence.Insolvent@insolvency.gov.uk