Insolvency Department Gets Power to Prohibit Debt Escrow Administrators

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The Insolvency Department can now investigate and disqualify directors who dissolve their own businesses in order to avoid paying debts, otherwise known as the phoenix.

The body’s new credentials, which were first announced in 2018, were approved by UK Business Secretary Kwasi Kwarteng yesterday (December 16).

Under this new legislative power, administrators could now also be required to pay compensation to creditors who have suffered a loss as a result of their fraudulent behavior, if Kwarteng decides to seek it in court, according to the government’s announcement.

The government intends that these new powers instilled in the insolvency service complement the law on rating (Coronavirus) and the disqualification of directors (dissolved companies), which was adopted in September to fight against directors who have dissolved their company in order to ” avoid repaying government guaranteed loans, such as the Bounce Back loan program.

“These new powers will put the brakes on rogue administrators who seek to avoid repaying debts, including government loans given to support businesses and save jobs,” Kwarteng said.

“The government is committed to tackling those who seek to leave the UK taxpayer out of pocket by abusing the financial support from Covid that has been so vital to businesses.”

The Insolvency Service can now investigate directors of companies who enter into any form of insolvency, including administration and liquidation.

He may also be tasked with investigating live businesses where there is evidence of wrongdoing, according to the government’s announcement.

If misconduct is found, directors may face penalties, 15-year bans or, in the most serious cases, prosecution.

The government is providing £ 1.5bn in trade tariff relief to sectors hardest hit by the pandemic and which have not been eligible for existing trade tariff support.

The government released guidelines earlier this week to help local authorities set up local programs through which businesses can access help.

Stephen Pegge, Managing Director of UK Finance, said: “The ability to dissolve a business when necessary is a reserved right in legitimate circumstances where there are no delinquent creditors, however, it may be subject to abuses.

“The banking and financial industry is therefore supporting this legislation which will give the insolvency department much needed powers to help hold rogue administrators to account by providing additional deterrents and easier enforcement of the rules.”

In September, the Financial Services Compensation Scheme told FTAdviser it alerted the regulator to 412 Phoenix cases, in which advisers who worked at defaulting companies joined a claims management company to file a complaint against their former. business.

He said there were other cases he was currently working on.

The revelation follows FCA proposals to ban CMCs from handling FSCS complaints when they have a relevant link to the complaint.

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