Guidance

Dissolved company investigations

Published 16 December 2021

Applies to England, Scotland and Wales

A company can be dissolved for different reasons. It might be voluntarily dissolved by its directors when it is not required any more (even if the company is insolvent) or by Companies House if they believe the company is not carrying on business or in operation. If a company has entered into formal insolvency proceedings like liquidation or administration, the company might be dissolved after the case administration is complete.

Over 400,000 companies were dissolved in 2020 to 2021. In most cases, dissolving a company is both legal and appropriate. So, directors of a company that has been dissolved can be directors of other companies. However, where the Insolvency Service receives complaints about possible serious misconduct, we have the power to investigate and apply for a director’s disqualification if there is evidence of serious wrongdoing or unfit conduct.

This guide is about civil investigations the Insolvency Service can undertake on behalf of the Secretary of State into the conduct of directors of companies that have been struck off the Register of Companies and dissolved in England, Wales and Scotland.

These powers are discretionary. This means that we do not have to investigate everything that is reported to us. We get a high number of complaints and we do not have the resources to investigate everything that is reported. The primary purpose of any investigation is to protect the general public or the business community, not the repayment of or recovery of assets for creditors. We prioritise the complaints received, targeting the companies and directors that present the greatest risk of harm to the public.

There is other guidance on GOV.UK about our investigations into companies and limited liability partnerships which are actively trading, and the conduct of directors of companies and other entities that have entered into formal insolvency proceedings.

If our civil investigation finds unfit conduct by a director, we can apply to the court to disqualify them from taking part in managing companies without the court’s permission.

Directors of limited companies should:

• carry out their duties honestly and responsibly
• make sure they and the company comply with the law and all relevant regulations
• use reasonable skill and care to act in the interests of the company’s creditors, customers, shareholders, employees and, sometimes, the public

More information about what a company director must do

More information about our investigations and company director disqualification

1. Unfit conduct

There is no complete list of conduct that may lead to disqualification. Some examples are:

• fraudulent behaviour
• not submitting tax returns or paying tax and any other money due to the Crown
• continuing to trade to the disadvantage of creditors at a time when the company was insolvent
• conduct that deliberately removes assets that should have been available to pay creditors
• letting somebody else run the company for the director
• not making sure the company is run properly
• not keeping or producing appropriate accounting records
• not preparing or filing accounts at Companies House
• not filing annual returns at Companies House
• not complying with other regulations
• not co-operating with any official receiver or insolvency practitioner appointed to the company

2. The law

The Insolvency Service takes disqualification proceedings to court under civil law, not criminal law. Whether somebody is disqualified or not, does not stop anyone else from investigating or taking any action against them. This action can include civil or criminal investigation, legal proceedings or other action against a director or any other party. This action may be taken by or on behalf of the Secretary of State (including through the Insolvency Service), any other agency, body, authority, person or interested party. This includes any action that may be taken by or on behalf of any office holder such as a liquidator or administrator.

We might apply for compensation orders in cases where a disqualified director’s conduct led to a direct loss to any creditor and they did not receive sufficient repayment from any insolvency process.

To access the legislation, visit www.legislation.gov.uk.

It’s a criminal offence to breach a disqualification order, undertaking or other restrictions (like a bankruptcy restrictions order) by acting as a director without the court’s permission. That person can be fined or be imprisoned for up to 2 years. They will be personally liable for the company’s debts built up during the breach. A company’s officers and managers can also be prosecuted if they allow a disqualified person to act in breach of the restriction. In addition, they may also become personally liable for the company’s debts built up during the breach.

3. When we might investigate

We review complaints and other information about the conduct of companies and their directors. We can investigate to decide whether to take disqualification proceedings. We will only do this if we decide there is sufficient reason to investigate and it is in the public interest. Any investigation will be a civil investigation into possible unfit conduct by one or more of a company’s directors.

Our civil investigators do not conduct criminal investigations. If it looks like the company or its officers might have committed criminal offences or other regulatory breaches, the case can be referred to our Criminal Investigation Team, the police, a regulator or other investigation agencies. They will then decide if they will carry out any further investigation.

We may investigate possible unfit conduct by a director of a dissolved company where information suggests that:

1. Corporate abuse has occurred. This is usually where the company has been involved in very serious misconduct, fraud, scams or other unethical behaviour.
2. A director did not make sure the company met all its statutory obligations, leaving it with unpaid fines or other enforcement action. For example, there might be outstanding fines for breaches of Health and Safety, Immigration or Environmental regulations.
3. A director has improperly carried on the same business or traded through a series of companies where each becomes insolvent (cannot pay their debts). Each time this happens, the insolvent company’s business and assets, but not its debts, are transferred to a new, similar ‘phoenix’ company. Depending upon the circumstances, this might show a director is unfit.
4. A director has repeatedly traded with the benefits of limited liability without following the rules relating to limited liability companies. For example, the director has a long history of serious filing defaults.
5. A director has not complied with the rules when applying to strike off a company from the Register of Companies.

The public should report any breaches of the rules regarding filing documents at Companies House or striking off a company to Companies House and not to the Insolvency Service.

4. What we will not investigate

On behalf of the Secretary of State, we can investigate possible unfit conduct by the directors of dissolved companies.

We will not usually investigate where:

• the company is being investigated by someone else such as the police or another regulator
• the main issues in the complaint are dealt with by another regulator, or can be better dealt with by another enforcement agency
• the only issue in the company is unpaid debts, there is no evidence of any other serious misconduct, and there is no history of previous failures by the director. This is because creditors can try to recover their money (and secure an investigation by the official receiver if a company is wound up) through the insolvency process
• there is no evidence of any current directorships
• we cannot trace the directors
• the only issue is filing defaults and there is either no evidence of very significant harm to creditors, or there is no significant record of the company repeatedly not complying with company legislation

5. We cannot investigate

We cannot use these powers to investigate possible unfit conduct in dissolved:

• limited liability partnerships
• general partnerships
• building societies
• incorporated friendly societies
• NHS foundation trusts
• registered societies
• charitable incorporated organisations
• further education bodies
• protected cell companies

6. Companies House

Companies House is responsible for the maintenance of the Register of Companies. Any complaints regarding filing defaults, the dissolution process or allegations of fraud in relation to the filing of documents with Companies House without the consent of companies or individuals should be reported to them first.

In general, the responsibility for considering and reporting Companies Act breaches and offences relating to the administration of companies rests with Companies House. This will cover breaches such as filing defaults, or provision of reports and accounts to those entitled to receive them.

Companies House, acting on behalf of the Secretary of State, may apply to the court for the disqualification of a director where there has been persistent breaches of the companies legislation relating to the filing of documents with the registrar of companies.

There is no sole agency responsible for prosecuting any related offences under the Companies Act 2006, but in the majority of cases prosecution would be taken forward by lawyers in the Insolvency Service acting on behalf of the Department for Business & Trade (DBT).

Once you have reported your concerns to Companies House, they will decide if the issues are sufficiently serious to report to the Insolvency Service. We will then decide if civil or criminal enforcement is in the public interest.

More information about Companies House, what they do and how to contact them

7. Actions creditors can take

The primary purpose of our investigations is to protect the general public or the business community, not the repayment or recovery of assets for creditors.

Creditors should try to recover their debts through any legitimate means available to them. The government cannot intervene in this process.

If a company has been dissolved, a creditor can apply to the court to restore the company to the Register of Companies, so they can take recovery action against it.

Finally, depending on the value of the debt, a creditor can petition the court to wind up the company. This does not guarantee you will recover your debt, and might cost more money, but it would start an investigation by the official receiver into how the company’s affairs have been conducted and why it failed.

Creditors should seek legal advice on what action would be best for them.

More information on the options available to creditors.

8. Who can we investigate

We can investigate the conduct of the people who have controlled a company, whether or not they were listed as being a director. We can investigate:

• company directors (including former directors)
• people acting as company directors (or who have acted as such) without being legally appointed
• shadow directors
• others who instructed a disqualified director to act in that unfit manner

For companies, a shadow director means, ‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’. Shadow directors use other people to front a company for them. The Company Directors Disqualification Act applies both to individuals and corporate entities that act as directors of other companies.

9. How we investigate

We tailor every investigation to the matters being considered. The investigation might include:

• looking at publicly available information
• correspondence with the company’s officers or other senior employees
• interviews with the company’s officers and other senior employees
• looking at the company’s accounting and other records
• case-specific enquiries of creditors, suppliers, employees and other associated parties like accountants, solicitors, banks and HMRC

The progress of the investigation is recorded and then reviewed by the case supervisor at regular intervals to make sure it stays on track and continues to be in the public interest.

How long we take to complete an investigation will depend on how complex it is, and factors like how much co-operation we get and how quickly people respond to our enquiries.

If there is evidence of unfit conduct to the standards required by the court and disqualification seems to be in the public interest, the investigator will submit a report to an independent team in the Insolvency Service.

Most of our applications for disqualification are made for an order under section 6 of the Company Directors Disqualification Act 1986, where we must apply for disqualification within 3 years of the dissolution date unless the court agrees to extend that time. Conduct in additional older companies can also be considered by the court but at least one company must have been dissolved within the 3 year period.

10. How we decide whether to take disqualification action

An independent team in the Insolvency Service, acting for the Secretary of State, consider the investigator’s report. They look at whether the investigator has sufficient evidence for disqualification, and whether it is in the public interest to apply to the court for a disqualification order.

Regularly and whenever new information comes to light, the decision to take proceedings is reviewed to make sure that it remains in the public interest to continue. If not, the proceedings will stop.

11. Public interest

If there is sufficient evidence to bring a case, we normally will, unless there are public interest reasons not to.

Public interest factors we consider include:

1. Deterrence and improving corporate standards. We look at whether our action would deter both the individual and others from doing similar acts in the future.
2. Public protection. Disqualification stops someone from abusing the privilege of limited liability. Disqualifications are publicised and entered on the public register of disqualified directors maintained by Companies House. This makes sure everyone can see who has been found unfit to run a company. This information helps people make informed decisions on whether or not to deal with them.
3. Fair and just. Proceedings should be seen by members of the public or businesses to be justified and reasonable for the individual case. Sometimes, even when there is sufficient evidence to prove clearly that a director is at fault, it will not be in the public interest to take proceedings. Examples include where the defendant is seriously ill and cases where the misconduct was so long ago it would be very difficult for the defendant to access information to present a proper defence, or for witnesses to clearly remember events.
4. Effective use of public money. We must make effective use of taxpayers’ money, so the expense must be justified for us to bring a case to court.

12. Our enforcement results

We have a general duty to deter unfit conduct by company directors. One way we do this is to publish details of our successful disqualification results, including details of the unfit conduct that led to our enforcement action. We publish them by maintaining the online disqualification search facility. We publish new results to the page every week and they are accessible for 3 months from publication. A disqualification can last up to 15 years and you can contact us to obtain details of current disqualifications that are not displayed.

In some cases, we also issue press releases to increase public awareness of the consequences of unfit corporate behaviour.

You can find out more about our enforcement action including statistical data in our monthly statistics and Annual Report and Accounts.

13. How to find a disqualified director or if the company is dissolved

13.1 Search for a disqualified director

Companies House maintains the disqualified directors register. The register includes details of directors disqualified by the courts or by undertaking within the provisions of the Company Directors Disqualification Act 1986.

13.2 Find out if a company is dissolved or in formal insolvency

Companies House maintains the register of companies. Use the ‘Find and update company information service’ to search the register.

14. How to complain

You can complain about a company.

You can find out about the types of misconduct that you can report.

This guidance includes information about reporting:

• a live company or its directors
• an insolvent company or its directors
• a dissolved company or its directors
• a disqualified director
• someone who is bankrupt, has a debt relief order or is subject to bankruptcy or debt relief restrictions
• the reuse of a company name

15. Further information

More information and publications about our investigations and enforcement work