Wednesday, 20 March 2019 08:13

Austerity Hammers Efforts to Protect Public from Rogue Businesses

New figures from the Insolvency Service show a shocking decline in enforcement actions against unscrupulous businesses since the government’s austerity programme was introduced in 2010.

According to the Service’s regular Enforcement Outcomes updates, the number of interventions to wind up companies in the public interest is set to decline again this year, the fourth consecutive annual fall. Over the longer term, in 2009/10 there were 267 successful petitions to close companies down, compared to just 73 in 2017/18 - a decrease of 73%. In the current year, with just a month to go, there have been just 57 completed actions.

Similarly, for Bankruptcy and Debt Relief Restriction Orders and Undertakings, in 2009/10 there were 1,945 actions taken by the Insolvency Service in total. In 2017/18, there was just 444, a decline of 77%. In the year to date, there have been 393.

The figures suggest a service struggling to keep up enforcement activity at previous levels. The fact that the sharp decline coincides with austerity, which has seen the majority of public bodies across the UK suffer drastic cuts to their funding, is surely more than a coincidence. It would be naive to suggest that the rate of decline is down to fewer rogue businesses misbehaving.

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Combating fraud and maladministration

Companies can be wound up by a judge in the public interest following a petition from either the Insolvency Service or stakeholders. There are various grounds for shutting a business down in this way, including proof of fraudulent and illegal activity and maladministration leading to serious debt. The Insolvency Service has frequently taken action against companies running investment and other financial scams, or to protect creditors from further risk when a company’s debts are spiralling out of control.

Debt Relief Restriction Orders are intended to prevent abuse of Debt Relief Orders (DROs), a new insolvency measure introduced in 2007 as an alternative to bankruptcy. DROs free individuals from responsibility for debts under £20,000 if it can be proven they do not have the means to pay them. However, they have been open to abuse, with ploys such as people disposing of assets before applying for a DRO, or deliberately running up business debts with the intention of using a DRO to protect themselves, or applying for credit fraudulently. Restriction Orders were introduced to combat such behaviours.

There has been a lot of disquiet recently over the link between austerity police cuts and a worrying rise in violent crime. These figures from the Insolvency Service should cause similar concern. If we do not fund our enforcement agencies appropriately, then more rogue companies and their proprietors will get away with scamming and ripping off innocent people and the majority of honest, trustworthy businesses. That will only further damage our already fragile economy at a grassroots level.

Image "Fraud Key" from Flickr User "Got Credit" used in accordance with CC BY 2.0

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