Imagine or maybe you can relate to this scenario. Your company has ceased trading, been wound up or been placed into liquidation.  If that is not enough the Insolvency Service then knock your door and you have to relive the process all over again.

However, who are the Insolvency Service? What is their role? And what is your duty to co-operate with them?

WHO IS THE INSOLVENCY SERVICE?

The Insolvency Service is an executive agency of and sponsored by the Department for Business, Energy & Industrial Strategy (‘BEIS’).  The Insolvency Service operate from 22 locations across the country and their primary function is to investigate, tackle financial wrongdoing, protect and maximise financial returns to creditors for the benefit and protection of the public.

WHAT IS THE ROLE OF THE INSOLVENCY SERVICE?

The Insolvency Service administer various tasks in both personal and corporate insolvency matters.  This article focuses on the Insolvency Service’s role and investigatory powers relating to company failures and the actions of directors in respect of:-

  • The affairs of companies either wound up or placed into liquidation.
  • Whether directors have breached their director duties.
  • Preparing, finalising and circulating reports of alleged director misconduct.
  • Disqualifying directors if there is evidence of misconduct.
  • Undertaking tasks in order to disqualify unfit directors in all corporate failures.
  • Prosecute breaches of company and insolvency legislation and criminal offences on behalf of BEIS.

The Insolvency Service flag any companies wound up or placed into liquidation.  The Insolvency Service then await a copy of the Directors Conduct Report usually referred to as the D-Report.

WHAT IS THE D-REPORT?

The D-Report is a document completed by the liquidator of the company usually within 3 months from the date of insolvency.  Amongst other company matters, the D-Report sets out the conduct of each person who was a director or had been a director of the company within the last 3 years from the date of insolvency.

A review of the D-Report is usually the first step in the investigation the Insolvency Service will then undertake in relation to the company, the conduct of its directors and the circumstances of why the company was wound up or placed into liquidation.

WHAT HAPPENS NEXT?

Having reviewed the D-Report the Insolvency Service will then do one or all of the following:-

  • Request the directors complete and return the Directors Questionnaire (‘the Questionnaire’).
  • Request additional information in respect of the responses provided in the Questionnaire.
  • Request the directors attend a physical or telephone interview.
  • Confirm a Disqualification Order pursuant to the Company Directors Disqualification Act 1986 (‘CDDA 1986’) will be sought against the directors of the Company.
  • Issue and serve a copy of the proceedings on the directors.

WHAT HAPPENS IF A DIRECTOR IGNORES THE INSOLVENCY SERVICE?

If a director fails to acknowledge, respond or engage the Insolvency Service are likely to:-

  • Issue an application compelling the director’s cooperation by order of the court.
  • Issue proceedings and obtain a Disqualification Order against the director.
  • Any other action the Insolvency Service consider appropriate.

If and when a court order is granted in favour of the Insolvency Service it is also likely to include a financial penalty for costs to be payable by the director usually within 14 days from the date of the order.

WHAT SHOULD A DIRECTOR DO THEN WHEN THE INSOLVENCY SERVICE COME KNOCKING?

The first thing a director should not do is panic.  The director should then proceed to:-

  • Seek independent legal advice without delay.
  • Acknowledge correspondence in a timely manner.
  • With the benefit of legal advice complete the Directors Questionnaire, attend a physical or telephone interview, if necessary, and respond to any further queries raised.

It is essential legal advice is obtained at the outset.  Directors often provide answers or make admissions without the benefit of legal advice.  The Insolvency Service are then able to rely on those replies and admissions at a later stage to include at trial seeking a Disqualification Order against the director.

TOP TIPS FOR A DIRECTOR TO REMEMBER

  1. Early and pro-active engagement regularly saves time, cost and can lead to the Insolvency Service being deterred from seeking a Disqualification Order against the director pursuant to CDDA 1986.
  2. Any delay in dealing with matters will prejudice the director’s position and likely lead to a Disqualification Order being made together with an order for costs the director.

If and when the Insolvency Service come knocking please do not hesitate to contact me.

Gulshan Kumar – Consultant Solicitor