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Just one in five reports on delinquent directors result in disqualification, Shadow Minister learns

New figures uncovered by Shadow Small Business Minister Toby Perkins show that in the last year, just 21% of reports submitted by Insolvency Practitioners against delinquent and unscrupulous directors resulted in a disqualification or undertaking by the Insolvency Service – down from 27% for 2010-11 and from 45% ten years ago.

These reports are known as “D1 Reports” and submitted against directors that are observed to be involved in poor or dishonest behaviour, they do not include insolvencies through honest failures.

In 2011-12, out of the 5,401 D1 reports submitted by Insolvency Practitioners only 1,151 (or 21%) resulted in a disqualification or undertaking, according to answers to Parliamentary Questions tabled by the Shadow Minister.

Mr Perkins and insolvency trade body R3 have joined forces to speak up for the majority of small business who suffer when delinquent directors are allowed to get away with their actions.  They are demanding action over falling disqualification rates for unscrupulous directors.

Commenting, Labour’s Shadow Small Business Minister Toby Perkins MP said:

“The vast majority of British businesses are fighting hard to survive in this time of recession.  Of those businesses which have unfortunately gone under, a small minority are a result of malicious practice by the company director.  The actions of these directors threaten other businesses and suppliers.

“The public need confidence that the Government and the Insolvency Service are taking tough action against unscrupulous directors to protect them and the millions of honest, hard-working small businesses who are the lifeblood of the British economy.

“These new figures demonstrate that more and more delinquent directors are walking away from their responsibilities each year.  This is a trend that cannot be allowed to continue.”

R3 President Lee Manning commented:

“In each report the Practitioner believes the Director’s behaviour ‘merits further investigation’, for potential misconduct. In fact, during the downturn, the number of D1 reports increased dramatically, reflecting an increase in fraudulent or delinquent behaviour – the disqualification process has simply failed to keep up.”

“This is a crucial area to get right in terms of protecting the public – no-one wants to see a delinquent director left unchallenged and free to continue to cause damage to other well-run businesses.  In fact Government estimates that for every disqualified director there is an £88,000 benefit to the economy, in terms of the economic damage that would have otherwise been caused.”

New figures also show 20% of disqualified directors flouting the law

Alongside low numbers of disqualifications, there are concerns that the disqualification process is not robust enough in preventing directors from repeating the same behaviour. Figures from R3 show that in the past 12 months, 20% of UK Insolvency Practitioners have seen disqualified directors’ breaking the terms of their disqualification.

In one instance, an Insolvency Practitioner submitted a D1 form against a director who had presided over seven failed businesses, only to be told by the Insolvency Service that it was not in the public interest to pursue the case.

R3 President Lee Manning said:

“The disqualification process in the UK is just not followed through, which is leaving consumers, suppliers and the public at risk. These Directors who then break the terms of their disqualification should feel the full force of the law.

“We need to push up disqualification rates and then make sure those who have been disqualified do stick to their terms if we are to maintain public confidence.”

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I am Toby Perkins, Labour's Member of Parliament for Chesterfield. If you would like to get in touch with me, my office is open and can be reached by phone on 01246 386 286. I also hold regular surgeries so that constituents can meet me and I can take up their concerns. If you would like to make an appointment then please do contact my office. Thank you for visiting.

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