Owners of small businesses in the UK who dissolve their businesses to avoid Covid debt could lose their right to serve as directors for up to 15 years.
Around 1.5 million small businesses have taken out Bounce Back Loans so far through a scheme offering interest-free loans up to £50,000.
As the government announced in the Budget earlier this year, it would crack down on any potential fraud in repaying emergency Covid-19 loans. An enhanced Insolvency Service will be able to investigate previously wound-up companies retrospectively. Officials aim to close the insolvency loophole to prevent any losses to taxpayers once the banks start charging interest or recouping loans.
A small business should only use strike-off or voluntary liquidation when it has no assets, has not traded, and when creditors have been informed. However, directors have been known to abuse the dissolution process by simply winding up their companies without putting them through an insolvency process to avoid liabilities and avoid investigation.
Moreover, with the new measures, directors are prevented from setting up nearly identical businesses after their companies are dissolved.
The government said the process, which often leaves customers and creditors, including HMRC out of pocket, would “no longer be able to be used as a method of fraudulently avoiding repayment of government-backed loans given to businesses to support them during the coronavirus pandemic”.
“Rogue directors who exploited the legal loophole that allowed them to deliberately run their companies into the ground to avoid paying their staff, suppliers, taxes or taxpayer-backed loans will have to watch their backs because this new legislation is closing that door firmly and permanently,” business minister Kwasi Kwarteng told the Times.
If you need financial management advice for these times, consider asking help from an experienced accountant in the UK. A Chartered Accountant assigned to your company will track filing deadlines, suggest tax exemptions, and prepare reports so you can pay any loans and debts on time without being banned.