Public at risk from ‘dodgy directors’
The number of directors disqualified by the government for misconduct, such as fraud, has failed to keep pace with an increased number of reports of potential misconduct, according to research by insolvency trade body R3.
The percentage of reports taken forward by the Insolvency Service (i.e. disqualifications) has halved from 40% in 2003/4 to 20% in 2009/10. Fraudulent activity is known to increase during tough economic times. In 2009/10, insolvency practitioners submitted 7,030 reports on directors' behaviour which they believed warranted further investigation. However, in that year, only 1,387 cases were concluded by the Insolvency Service.
R3's President Steven Law commented:
"This mechanism is in place to protect the general public and other businesses from dishonest directors. Not punishing directors who are blameworthy sends out a dangerous message to others."
The most common reasons for insolvency practitioners reporting directors are: failure to pay tax debts (35%); obtaining personal benefits from the company (28%) and appropriation of assets to other companies (24%).
"These are serious infringements that damage the reputation and success of UK plc", continued Steven Law." Furthermore, R3 would like to assist the Insolvency Service in implementing an effective system which ensures that it is not just the easier cases that are pursued. It is important that the more serious offences are punished appropriately."
R3 would like to see blameworthy directors fined and wants to work with Government to establish a financial and corporate education programme for disqualified directors. This would help prevent the sequential failures from directors which are so damaging to public confidence, as would increasing the percentage of insolvency practitioner reports taken forward by the Insolvency Service.
R3 Press Office