Overview
The scope and extent of a director's duty is of particular interest to officeholders of companies and their D&O insurers.
Since the pandemic, during which insolvency rates were low due to Government measures, there has been a considerable rise in insolvencies in the UK and many other jurisdictions. High interest rates have significantly increased the cost of borrowing and many companies are saddled with mountains of debt that was taken out in better times and which are now difficult to repay. In addition, high inflation and energy costs, lower consumer confidence and volatile supply chains have all contributed to making the last few years very difficult for businesses.
Banned! Fraudsters!– Terms used by the Insolvency Service for directors who abused the government backed loan scheme which was put in place to help businesses struggling during the pandemic.
The economic environment has created tough conditions for UK businesses in recent years. Heightened inflation, high-interest rates, and a lack of consumer confidence have all taken their toll on trade.
The adage ‘there is no such thing as a free lunch’ rings true for the 831 company directors disqualified in 2023/24 for abusing the Covid financial support scheme.
On 12 September 2023, the government published its long-awaited response to its consultation on the future of insolvency regulation.
The reforms will introduce:
The court orders a disqualified director of an insolvent company to pay personal compensation to creditors.
This is only the second time the courts have considered a personal compensation order against a disqualified director since their introduction in 2015.
What happened?
Secretary of State v Barnsby [2023] EWHC 2284 (Ch) concerned an individual who was the sole director and majority shareholder of a company that sold package holidays.
The increasing rates of insolvencies in Small and Medium Enterprises (SMEs) following the COVID-19 pandemic is continuing at a high rate, and England and Wales have seen the highest rates of insolvencies since 2009. Compared with the second quarter of 2022, the total of registered company insolvencies has increased by 13%. Compared with the first quarter of 2023, the rate of insolvencies has increased by 9%.
The Insolvency Service has published its official three-year Post Implementation Review of the Corporate Insolvency and Governance Act 2020 (CIGA). The Review focused on the three permanent measures:
In figures released on Friday 28 July 2023 from the Insolvency Service, the total number of registered company insolvencies in England and Wales during Q2 2023 was 6,342, the highest since Q2 2009 and up by 9% compared to Q1 2023. The construction industry was again the hardest hit (a trend going back over a decade). Whilst more construction companies went into administration during Q2 compared to Q1, significantly higher numbers went quietly into liquidation during the same period, at an average rate of around 11 per day.