Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 – what does it mean for co-operatives?

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act, which came into force on December 15th 2021, provides the Insolvency Service with new powers to investigate directors of dissolved companies. But what does this mean for co-operatives?

The types of behaviour the new Act is intended to tackle include dissolving a company to:

• Shed its liabilities and transfer the business to a new company, known as pheonixism
• Avoid an investigation into director conduct
• Avoid formal insolvency proceedings to reduce costs and scrutiny that comes with those proceedings
• Avoid paying back their debts, including government Bounce Back Loans provided to support businesses and save jobs during the coronavirus pandemic

The penalties for directors if misconduct is found include being disqualified from being a director for up to 15 years, or in the most serious of cases, prosecution. The Business Secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors who have lost out due to their fraudulent behaviour.

What does it mean for co-operatives?

This legislation only applies to co-operatives incorporated as limited companies.

It is important that where their directors are considering dissolution that they are doing so for the right reasons and not to avoid scrutiny of their actions. This involves taking appropriate and timely advice at the point where a co-operative may be careering into insolvency.

Co-operatives UK has developed some guidance for co-operatives facing financial strife which sets out steps they should take when experiencing financial difficulty.

Members of Co-operatives UK who are approaching insolvency may also contact our Advice Team.