Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Lord Lea of Crondall Excerpts

Wednesday 10th November 2021 Grand Committee

Moved by

[Lord Lea of Crondall]

3: Clause 2, page 3, line 12, at end insert—
“(ba) after subsection (1) insert—“(1ZA) Where the company in question has been dissolved without becoming insolvent, the court, when considering a person’s conduct under subsection (1)(b), is to take into account that person’s conduct as a director of all previous dissolved or liquidated companies in which they have been a director, and may take account of evidence other than that provided by the Insolvency Service.””

[Lord Lea of Crondall (Non-Afl)]

My Lords, I would love to have been a fly on the wall in the two departments determining the structure of this Bill, spatchcocking its elements, which now include one which is under the business and industry department. I understand how it has come about, but it has opened up a rather broad range of issues about directors’ disqualification. This is not an untimely moment to look at that. When we talk about pandemics, there has been a bit of a pandemic of directors learning new tricks in dealing with dissolving companies and coming back with another company, some tax advantages, and so on.

In addition to the removal of the legal loophole precluding creditors from holding former directors of dissolved companies to account, there is a similar and connected issue involving liquidating companies where creditors will be likely to be significantly out of pocket, as the insolvency practitioner—the liquidator—will almost certainly be unable to gather sufficient proceeds from the remaining assets of the company to pay the creditors in full. Creditors suffering financial loss often include HMRC itself. It is therefore logical that the court take into account the insolvency history, of both dissolved and liquidated companies, when deciding whether a director is disqualified. It follows from that —at least it is a very arguable point—that the court should not be reliant solely on evidence from a single dissolved company under investigation.

--- Later in debate ---

I think that also answers the noble Baroness, Lady Blake’s question about how more or other resources will be allocated. It is a matter for separate discussions with the Treasury. We will want to ensure that the resources made available to the Insolvency Service for these cases are adequate for investigating the most serious cases and resolving those issues. With those reassurances, I hope that the noble Lord, Lord Lea, will feel able to withdraw his amendment, and that the noble Baroness, Lady Blake, will not press hers.

[Lord Lea of Crondall (Non-Afl)]

My Lords, I thank the Minister for those responses. Before I withdraw the amendment, I would add that he dismissed a point I made without looking at the context in which I made it. The House of Commons Library briefing, Phoenix Trading and Liability of Directors, covers the starting up of

“a phoenix company following the liquidation of the original company”.

However, the briefing says:

“The Insolvency Service may also investigate a failed company (and the role of its directors) where there are concerns about either the trading practices of the company or the circumstances surrounding the failure of successive companies.”


The ability of the Insolvency Service to investigate

“the failure of successive companies”

in a liquidation scenario should, logically, be extended to investigations into successive dissolved companies. I am not quite sure whether the Minister responded to that point; maybe he would like to respond now.

[Lord Callanan (Con)]

I am happy to make it clear for the noble Lord again. The misconduct, or otherwise, of directors of previous companies can already be taken into consideration, and is in many ongoing cases. It can be considered by the court and the Secretary of State can submit further evidence, as can creditors themselves. I assure the noble Lord that evidence of previous misconduct or previous companies can always be taken into consideration.

[Lord Lea of Crondall (Non-Afl)]

On this problem of serial offending, as it were, and the limitation of the courts to look into it, I will take time to clarify exactly what issue has been reported. This will ensure there can be no misunderstanding on Report, where it will come out, as to where there is a problem at the moment, so that we are not talking at cross purposes.

This has been a useful opportunity to drill down into some of these matters. We will return to them on Report. I thank my noble friend for agreeing with me; we will both need to composite some of this material into a shorter amendment on Report. At the moment, I trust that the Minister and the department will reflect on the merits of what has been said. I beg leave to withdraw the amendment.

Amendment 3 withdrawn.