My Lords, I would love to have been a fly on the wall in the two departments determining the structure of this Bill, spatchcocking its elements, which now include one which is under the business and industry department. I understand how it has come about, but it has opened up a rather broad range of issues about directors’ disqualification. This is not an untimely moment to look at that. When we talk about pandemics, there has been a bit of a pandemic of directors learning new tricks in dealing with dissolving companies and coming back with another company, some tax advantages, and so on.
In addition to the removal of the legal loophole precluding creditors from holding former directors of dissolved companies to account, there is a similar and connected issue involving liquidating companies where creditors will be likely to be significantly out of pocket, as the insolvency practitioner—the liquidator—will almost certainly be unable to gather sufficient proceeds from the remaining assets of the company to pay the creditors in full. Creditors suffering financial loss often include HMRC itself. It is therefore logical that the court take into account the insolvency history, of both dissolved and liquidated companies, when deciding whether a director is disqualified. It follows from that —at least it is a very arguable point—that the court should not be reliant solely on evidence from a single dissolved company under investigation.
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I add that the House of Commons Library briefing Phoenix Trading and Liability of Directors, which covers starting up a phoenix company following the liquidation of the original company, states:
“The Insolvency Service may also investigate a failed company (and the role of its directors) where there are concerns about either the trading practices of the company or the circumstances surrounding the failure of successive companies.”
The ability of the Insolvency Service to investigate this “failure of successive companies” in a liquidation scenario should logically be extended to investigations into successive dissolved companies, which is the second main point that I wish to elucidate.
This is why we have Amendment 3 as well as Amendment 7, which is a more tactical question of establishing the need for the court to take into account a person’s conduct in all previous dissolved or liquidated companies in which they have been a director, so that
the broader picture of their behaviour can be taken into account by the court. Taken together, if the court decided to proceed, any historical evidence of potential malpractice in other dissolved or liquidated companies of which that person had been a director would be taken into account by the court. That is a legal loophole. Since this Bill is miscellaneous to the degree that these matters are before us, it is a good opportunity to reflect on whether this is an add-on that would be rather helpful. Before Report, I am sure the department and the Minister will think about whether this is a good moment to have a look at that.
I suggest that the amendment will ensure that the court’s decision on whether to disqualify an individual from being a director is based on not just their conduct in a single case under review but their track record in past insolvencies. I will stop there, but I hope that the department and HM Revenue & Customs will have taken note of the exponential growth of the eye-watering sums being lost, which could be materially brought down by this amendment, along with my noble friend’s amendment. I beg to move.