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The Director Disqualification Regime 2022

The Director Disqualification Regime so far in 2022 is not turning out quite as some might have expected.

The Bounce Back Loan fraud press releases from the Insolvency Service may have given the impression of many Director disqualifications with plenty more on the way. However, what do the figures for 2022 show so far?

he Director Disqualification Regime

The Director Disqualification regime appears to be currently flowing at around 32% of the annual rate last year. All the graphs, bar charts and tables in this article appear to show a disqualification regime in the first five months of 2022 in some decline.

It is a bit surprising because whilst in 2021-2022 one might have anticipated some reductions due to the impact of Covid-19 on government business, such a significant reduction might not have been expected to continue into this year.

Why has there been such an apparent downturn in the Director Disqualification Regime?

There are three notable differences in the insolvency statistics that might affect the disqualification regime in the period since the global pandemic descended on the scene compared to the position at the moment:

  • There have been many fewer Compulsory Liquidations.
  • There are Covid Finance cases that account for a material proportion of Director misconduct.
  • Substantially fewer disqualifications have resulted from trading to the detriment of the crown.

However, none of this appears to explain why it is that there were 5 times the number of disqualifications in 2019-2020 compared to the first five months of 2022 if you assume that in 2022 the rate will remain similar for the rest of the year.

Fewer Compulsory Liquidations

There are significantly fewer Compulsory Liquidations. The average monthly rate for Compulsory Liquidations in 2022 is a monthly figure of 113.8 whereas in 2019 the rate was more than 2 times this level at a monthly average of 245.33 over 12 months.

total insolvent liquidations in 2019

We can see that in 2019 Compulsory Liquidations never amounted to more than 25% of the total of insolvent Liquidations. The vast majority of Liquidations were Creditors Voluntary Liquidations.

2019 compulsory liquidations

So if you assume the numbers of Compulsory Liquidations are having a material impact on the level of disqualifications and compensate the numbers by increasing them by 2.156 times (245.33/113.8).

There were 106 Director Disqualifications in the five months to May 2022, so we can assume by the end of December 2022 there will be something in the order of 254 disqualifications for the year based on the current monthly rate.

If we then address the Compulsory Liquidation level and strip out this anomaly there ought to be 548 disqualifications.

This figure is still well down on the average for disqualifications in the 10 years before Covid-19.

director disqualification regime in ten years pre covid

In the ten years before Covid-19 disqualifications were running at an average of 1,234 per annum. This is well over 2 times the level of Director disqualifications in 2022 if we take into account the significant reduction in Compulsory Liquidations. So the conclusion appears to be that the downturn in Compulsory Liquidations has not caused the downturn in disqualifications.

Covid Finance Cases In The Director Disqualification Regime 2022

If you strip out Covid finance which accounts for around 35% of disqualification allegations this year so far and compare the annual rate to pre-pandemic levels, the regime appears to be down 87% from 2019-2020.

director disqualification regime covid effect

In May this year, there were 21 or fewer cases of Director Disqualification due to Covid finance.

Disqualification Undertakings In The Disqualification Regime

Notwithstanding all the publicity over Bounce Back Loans, disqualification undertakings appear to be running at 20% of the pre-pandemic annual levels.

Director Disqualification Regime Allegations

Disqualification allegations run by the Insolvency Service in 2022 are well down in comparison with previous years.

director disqualification regime allegations

If you look at the typical types of allegations prosecuted by the Insolvency Service to suggest unfitness on the part of a Director, out of the six major categories analysed, not even Covid Finance disqualifications have increased in 2022 compared to 2021. All the rest were well down.

director disqualification regime allegation types

Trading To The Detriment Of The Crown

Perhaps it is predictable that allegations concentrated on trading to the detriment of the Crown will have dropped off as HMRC has not been adopting a robust approach to debt collection over the last couple of years. So probably this may pick up again later on this year.

director disqualification regime trading to the detriment of the crown

Conclusion

The Director Disqualification Regime appears well down in terms of the number of Directors being disqualified in 2022.

This may be the lull before the storm as Covid Finance investigations progress and with the level of Liquidations now creeping up significantly, we could, in fact, see the Regime later on this year or next, reach new heights. Watch this space.

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