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

Debate between Peter Grant and Mick Whitley

Tuesday 6th July 2021 Public Bill Committees

[Peter Grant]

[Mick Whitley (Birkenhead) (Lab)]

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

Debate between Peter Grant and Mick Whitley

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Peter Grant]

Q Good morning, Mr Pegge. You have described the loophole of company directors being able to dissolve the company in order to avoid their liabilities. Another way that directors can act is to set up two or three companies, transfer all the assets out of a company, dissolve the company with the debts and retain the companies with the assets. Is that a loophole that will still exist, even if the Bill goes through? If that loophole continues, is there a danger that that then becomes the route of choice for dodgy directors to avoid their liabilities?

Stephen Pegge: I think the practice you are describing is sometimes called phoenixing—setting up a company in the same location with the same assets purporting to be the same business with the same directors. It has certainly been a matter of concern for some time. Putting in place these measures should help to discourage and mitigate the risks of phoenixing: I do not think it entirely removes it. As you say, it is possible, even without these additional powers of investigation, for that to take place, but certainly where there is evidence of abuse, the fact that the Insolvency Service will have powers under the discretion delegated by the Secretary of State to investigate the directors, take action against them in terms of disqualification more generally, and seek compensation from them personally for losses suffered will discourage the practice of phoenixing, which I know is a concern. As I say, I do not think that it entirely removes it, but it certainly will discourage it, and to some extent remove some of the possibilities of it taking place.

[Mick Whitley (Birkenhead) (Lab)]

Q Welcome, Mr Pegge. Do the Government proposals address all the problems that have been identified with the dissolution process in relation to liabilities and directors’ conduct?

Stephen Pegge: This is certainly a very important contribution to addressing major issues, and it is the one that we have been most concerned about recently. We have seen, as I mentioned, real evidence of dissolution being used as an attempt to avoid liability, but I stress that in many cases dissolution is an efficient and appropriate way for companies to be removed from the register where there is no money owing and that business is ceasing, without going through the time and cost of liquidation, which obviously is available as an alternative—for solvent businesses through members’ voluntary liquidation, or in insolvent situations through creditors’ voluntary or compulsory liquidation. I am not aware of significant other means by which we need to deal with abuse of dissolution. This is the one that has been most to the fore in the evidence that we have seen of abuse, certainly through the fraud group.