Small business owners who wind up their companies to avoid having to repay Covid debt could be banned from being company directors.
Owner-directors found guilty of abusing insolvency procedures to duck out of having to repay Covid debt taken out by their small business could be banned for up to 15 years.
About 1.5m small businesses have taken out Bounce Back Loans through a scheme that offered up to £50,000 interest free for a year.
And the new beefed-up Insolvency Service will be able to investigate retrospectively to already wound-up companies.
The government promised to clamp down on any potential fraud in repaying emergency Covid-19 loans in the Budget earlier this year.
Officials are keen to sew up the insolvency loophole to curb any losses to the taxpayer as banks start to charge interest or seek to recoup loans once the repayment holidays on the government-backed schemes end.
Dissolution via strike-off or voluntary liquidation is only supposed to be used by a small business without a prior insolvency and only when the company no longer has any assets, has not been trading, and where creditors have been informed.
However, the dissolution process is sometimes quietly abused by directors who simply wind up their companies without putting them through an insolvency in order to drop liabilities and escape investigation.
The new measures also prevent directors of dissolved companies from setting up a near identical business.
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.