The Insolvency Service is increasingly using ‘public interest’ disqualification orders to remove potentially rogue directors from their positions before they can do more wrong, says Moore Stephens.
Data from the Insolvency Service show that the number of ‘public interest’ disqualifications have increased from four in 2015/16 to 28 in 16/17. This type of disqualification is on course to grow even more in 17/18, after 20 of these Section 8 disqualifications were procured in the first six months of the year.
Section 8 orders are used by the Government as a way of removing directors whose behaviour makes them unfit to be director at any company. The Government describes Section 8 orders as being aimed at ‘rogue’ directors who can do harm to the wider economy.
The Insolvency Service estimates that it has prevented losses of £92 million in 2016/17 as a result of their director disqualification work, saving creditors around £114,000 for each director disqualified.
Moore Stephens says that the large increase in disqualifications is evidence of the Insolvency Service looking to initiate disqualification proceedings at the earliest possible opportunity. This is done to protect both customers and creditors of the respective companies.
In September 2017, the director of a hairdressing business in Essex was disqualified in the public interest after employing three illegal immigrants. She failed to pay her fine issued by the Home Office and was subsequently disqualified under Section 8.
Public interest disqualifications have been made easier to bring by the Government following a change in the law in 2015. This broadened the scope of what evidence could be used to bring a disqualification order.
Mike Finch, Restructuring & Insolvency Partner at Moore Stephens, comments: “Suspect directors are bad for businesses as a whole as well as giving their entire sector a bad name. It is good that the Insolvency Service is looking to clear them out. Directors who are suspected of malpractice have in the past gone on to cause further damage at other businesses. This makes it vital that the Insolvency Service prevent them acting at the earliest possible opportunity.”
“The fact the number of public interest disqualifications is continuing to rise should give creditors and consumers more confidence that unfit directors are being removed from the system.”