Figures Suggest Worrying Drop in Insolvency Service Enforcement

The latest official figures detailing the number of convictions and other enforcement actions made under the Companies Act show that Insolvency Service activity is down by as much as 50% year-on-year in a number of key indicators.

The Insolvency Service publishes monthly statistics detailing the number of prosecutions, fines and winding up orders it has executed against individuals and businesses for breaching rules relating to the fit and proper running of businesses. Many of the actions are made under the terms of the Companies Act 2006, which sets out clear responsibilities for company directors and makes individuals personally liable for mismanagement of businesses leading to insolvency.

The latest figures published for September 2019 represent the halfway mark for the 2019/20 financial year, and the provisional year-to-date data shows a marked decline compared to previous years. In terms of the total charges convicted, for example, in the previous three complete financial years, the figures were 146, 124 and 123 respectively. Between April and September 2019, there have so far been 37 charges convicted. Extrapolating that over the full 2019/20 financial year, that would represent a 44.9% drop on the average figure for the previous three years.

Convictions against individuals fare slightly better - 36 of the 37 convicted charges this year have been against named directors of companies. But again, taken as an indicator for what the figure for the full year might be, that is still 23.9% down on the average across the previous three years. The number of financial orders issued, which includes fines, cost orders and victim surcharges, shows a similar drop - the 52 issued in the six months to September represents a 25.5% decline on the previous three-year average.

Things look even worse for imprisonments and disqualifications. There have been 15 cases of individuals sent to prison following prosecutions under the companies Act since April. In the previous three years there were 74, 71 and 64, so that marks a 56.9% decline. There have also been just six disqualifications so far this financial year, compared to 42, 28 and 34 in the previous three - a 65.4% drop against the average.

In terms of winding up orders, the figures are more consistent with the trend of the previous three years - there have been 33 since April, more or less on course to match the 82, 73 and 62 seen between April 2015 and March 2019. But the number of winding up orders issued itself fell sharply in 2015/16 compared to the trend seen since 2009/10, and have never yet recovered.

Any tangible decline in enforcement action by the Insolvency Service is bad news for business in the UK. The laws are there to act as a deterrent to unscrupulous and reckless behaviour which drives business into insolvency, costing jobs and causing massive disruption across supply chains as debts go unpaid. Any signal that the government is going soft on pursuing actions against individuals and companies that fail to comply with the law, often using insolvency as an escape route from financial responsibility, will only give a green light to it happening more and more.

Image by Daniel Bone from Pixabay


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