Fall in Insolvency Service prosecutions

According to official figures, charges brought by the Insolvency Service against company Directors fell from 174 in the year to March 2022 to just 95 last year, a decrease of 42 per cent.

This is surprising, as there was a rise in fraud and error by company Directors during the pandemic, with HM Revenue & Customs (HMRC) claiming that around £5 billion was lost through the Government’s three key Covid support schemes.

The drop in prosecutions is likely to be associated with a lack of resources at the Insolvency Service, as company insolvencies in 2023 across England and Wales reached their highest annual total in 30 years, jumping from 22,109 in 2022 to 25,158 in 2023.

However, news of a successful prosecution emerged only this month, when business owner Salih Ozhot of North London was sentenced to two years in prison, suspended for two years, after admitting to cheating taxpayers out of £50,000 by fraudulently applying for a Bounce Back Loan.

He was also ordered to repay the £50,000 he fraudulently obtained through payments of £500 per month.

Following the conviction, a spokesman for the Insolvency Service said, the agency “will not hesitate to take action against those who so flagrantly steal from the public purse.”

A lack of resources within the Insolvency Service does not necessarily mean that delinquent directors can act with impunity.  In many cases it will be an insolvency practitioner from the private sector that issues proceedings against directors or shareholders of insolvent companies.

These can be private prosecutions but are far more likely to comprise civil claims.

Roger Isaacs, National Technical Director of NIFA, said: “One of the most common pitfalls for directors arises when they have been advised by their accountants to remunerate themselves by paying dividends in lieu of salary.  Once a company becomes insolvent dividends can become unlawful and can be clawed back by liquidators.

It is therefore imperative that directors seek early advice if their companies’ solvency is in doubt.  Forensic accountants can then play an important role whether it be acting on the instruction of the directors accused of wrongdoing or providing an independent opinion to support the claims made by liquidators who are seeking to claw back unlawful dividends.”

Sources: Insolvency Service

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