Official Statistics

Guide to Insolvency Service Enforcement Outcomes

Updated 22 April 2021

1. Introduction

This document aims to provide a comprehensive guide to the Insolvency Service Enforcement Outcomes release, focussing on the context of the statistics and definitions used.

The Insolvency Service welcomes feedback on this guide. Please send comments to [email protected].

The Insolvency Service Investigations and Enforcement Services are responsible for investigating serious financial misconduct by companies and individuals. Our Official Receivers are responsible for investigating individuals who are subject to bankruptcy or debt relief orders. Detailed information about our investigation and enforcement work and how we achieve our outcomes can be found online.

Our independent Legal Services Directorate (LSD) is the lead enforcement agency for insolvency related fraud and associated corporate misconduct. Further information on the range of legal, operational and policy advice provided by the LSD can be found online.

The Insolvency Service Enforcement Outcomes statistics series reports on enforcement outcomes obtained as a result of the work of the Insolvency Service. This includes enforcement outcomes obtained as a direct result of the work of Insolvency Service employees, as well as cases that have been referred by the Insolvency Service or where there has been significant involvement of the Insolvency Service in a case.

The geographical coverage of the statistics varies between the data being reported. A summary of the coverage of each Section can be found in the table below.

Section	Coverage
Director Disqualifications	Great Britain
Companies Wound Up in the Public Interest	United Kingdom
Bankruptcy and Debt Relief Restriction Orders and Undertakings	England and Wales
Criminal Charges Outcomes	England and Wales

2. Director Disqualifications

Director disqualification is the process whereby a person is disqualified, for a specified period, from becoming a director of a company, or directly or indirectly being concerned or taking part in the promotion, formation or management of a company without permission from the court.

Director disqualifications in Great Britain are made under the Company Directors Disqualification Act (CDDA) 1986. Directors in Northern Ireland are disqualified under the Company Directors Disqualification (Northern Ireland) Order 2002.

The Insolvency Service Enforcement Outcomes statistics on director disqualifications relate to individuals that have acted as the director of a company in Great Britain, or a company that has an interest in Great Britain. These statistics exclude director disqualifications in Northern Ireland that are administered by the Department for the Economy.

The remainder of this Section provides a summary of the types of disqualifications and different allegations under the CDDA 1986. More detailed guidance of the process of director disqualification and the restrictions associated with being disqualified can be found on gov.uk.

An individual may be disqualified from being a director if they have failed to meet their legal responsibilities. This applies to individuals formally appointed as a director and those deemed to have acted as a director even though they were not formally appointed.

Anyone can report a company director’s conduct as being ‘unfit’. ‘Unfit’ conduct includes:

• Allowing a company to continue trading when it cannot pay its debts.
• Not keeping proper company accounting records.
• Not sending accounts and returns to Companies House.
• Not paying tax owed by the company.
• Using company money or assets for personal benefit rather than fulfilling their obligations as a director.

Disqualification proceedings can be issued by the Insolvency Service, acting on behalf of the Secretary of State for the Department for Business, Energy & Industrial Strategy (BEIS), or by the official receiver, who is part of the Insolvency Service.

Companies House (acting on behalf of the Secretary of State), the Competitions and Markets Authority or (rarely) an insolvency practitioner can also issue disqualification proceedings. A court may also make a disqualification order against a person who is convicted in connection with forming, marketing or running a company.

The Insolvency Service pursues director disqualifications under three particular Sections of the Act:

• Section 2 – Following a conviction for an indictable offence in relation to the promotion, formation, management, liquidations or striking off of a company.
• Section 6 – For unfit conduct in relation to an insolvent company.
• Section 8 – Where it is considered expedient in the public interest, arising from investigative material.

The Section 2 disqualifications presented in the Insolvency Service Enforcement Outcomes statistics are only those that are a result of a referral or significant input from the Insolvency Service and therefore do not include all Section 2 disqualifications during the referenced time periods.

Section 6 and 8 disqualifications can be made as an older or undertaking. As Section 2 disqualifications are made following a conviction, they are all orders.

Companies House maintains a register of all directors disqualified under the CDDA 1986 and publishes management information on annual numbers of all director disqualifications.

Changes to legislation in 2015 broadened the scope of investigative material that can be used to bring a disqualification, for example information from other regulators. This led to an increase in disqualifications under Section 8 of the Act.

2.1 Disqualification Orders and Undertakings

A disqualification order is made by the court under the Company Directors Disqualification Act 1986. This applies to individuals formally appointed as a director and those who have carried out the functions of a director and to shadow directors.

For an order made against an unfit director of an insolvent company, under Section 6 of the Act, the disqualification order period is between 2 and 15 years.

It is possible for Section 2 and Section 8 disqualifications to be enforced for up to 15 years and the legislation does not specify a minimum period of disqualification.

As the number of cases with a disqualification period of less than two years is very small, they have been included in the 2 to 5 years category for simplicity. If at any point there are a substantial number of these cases, this will be noted in the accompanying data tables.

A disqualification undertaking is the administrative equivalent of a disqualification order and can be entered into, voluntarily, without the need for court proceedings. Once accepted by the Secretary of State it has the same effect as a court order and can only be amended by the court. A reduction in the length of the disqualification can be offered in certain circumstances if the director accepts an undertaking. This is in recognition of the earlier protection of the public and the costs saved from avoiding court proceedings.

2.2 Director Disqualification Allegations

The Insolvency Service Enforcement Outcomes statistics report annually on the allegations made in relation to disqualifications obtained under Section 6 of the Act. It is not currently possible to categorise the allegations for disqualifications made under Section 2 or Section 8 of the Act.

Allegations made in Section 2 disqualifications tend to be far more varied. This is because a Section 2 disqualification can be made, alongside other measures, such as a fine or imprisonment, as part of sentencing following the criminal conviction of an individual in court. A disqualification order can also be made as a result of a civil application by the Secretary of State for a disqualification order on the basis of the conviction.

The allegations made in Section 8 disqualifications are not currently recorded on the administrative system. Some information is recorded; however this is not currently recorded in a consistent manner. In general, allegations are based around fraud or unfair treatment of customers.

Information on allegations made in relation to disqualifications obtained under Section 6 of the Act before April 2011 is not presented within the Insolvency Service Enforcement Outcomes statistical series as the data available are not considered to be of sufficient quality to be meaningful.

2.3 Section 2 Disqualification Allegation Categories

This Section provides more detail about the types of behaviours that can lead to disqualification under the categories presented in Insolvency Service Enforcement Outcomes.

Phoenix companies or multiple failures

Cases of trading through a successor company allege that the current company was set up in a way which was the same as or similar to that of a previously failed company and that the director has not learnt from the preceding failure. The misconduct is that the individual has not learnt from their mistakes or changed their ways and that the new company has effectively continued the trading of the insolvent business with no reasonable prospect of success.

The allegation can only be made against an individual with an active involvement in the management of both companies whether that individual was formally appointed or not.

Misappropriation of assets

Asset misappropriation happens when a person entrusted to manage the assets of an organisation steals from it. This can include the theft of cash or cash equivalents, such as credit notes, or company data or intellectual property.

Unfair treatment of the Crown

This refers to the treatment of Her Majesty’s Revenue and Customs (HMRC).

This allegation arises when a director has treated the Crown less favourably than other creditors. The courts treat a debt to HMRC as no different to a debt to any other creditor, and there is no special significance that a company owes money to the Crown rather than any other type of creditor.

However, unlike a normal trade supplier, HMRC have little or no control over the extent to which they are financially exposed to a company, and they are often referred to as an “involuntary” creditor. In addition, they rely on the company to inform them of how much they are owed, and it is these two factors that combine to create a potential area of abuse by directors.

Debts to HMRC typically arise in two ways: either as a result of tax due on profits, or as a result of the company collecting tax on behalf of the Crown. It is this latter type of debt which gives rise to most allegations of unfit conduct.

Transaction to the detriment of creditors

A transaction to the detriment is any transaction or series of transactions which adversely affects the interests of creditors. Detriment can be to creditors generally or just to a particular creditor or group of creditors. Although a transaction may happen to be a preference (as defined by Section 239 of the Insolvency Act 1986), a transaction at an undervalue (as defined by Section 238 of the Insolvency Act 1986), or a void disposition (as defined by Section 127 of the Insolvency Act 1986), in disqualification it is the effect of the conduct and the director’s motivation which are important.

A transaction to the detriment of creditors can only be alleged if the company was insolvent at the time of the transaction or became insolvent as a result of it. The value of the detriment to creditors also has to be quantified, including the amount of money, or the realisable value of an asset, lost to the estate.

Trading at a time when knowingly or unknowingly insolvent

Allegations of insolvent trading involve the identification of a date when the director knew, or should have known, that the company was insolvent, after which the director caused or allowed the company to continue to incur liabilities so that creditors were bearing all the risk of the company’s trading in a situation where there was a real likelihood that the company’s business would collapse entirely or that the debts being incurred would never be paid.

Some of the circumstances that lead to a conclusion that a company was insolvent at a particular point may be perfectly genuine trading difficulties, or market conditions, as opposed to evidence of non-payment of creditors but they are, nevertheless, crucial to the assessment that the director knew, or should have known, of the company’s position

Accounting matters

Allegations made under this category are mainly made as a result of the failure to properly maintain and preserve accounting records – an obligation placed by the Companies Act upon every company, whether insolvent or not. When a company fails, its outstanding affairs need to be dealt with and its trading history and the decisions of those controlling it come under scrutiny. Without records this process is hampered. Where the consequences of not having these records are significant, those responsible should be censured. It is expected that accounting records cover information on assets, liabilities, payments to and from the director, and dealings with associated companies. It could be argued that a company continued to trade not knowing it was insolvent as a result of poorly kept accounting records. Also included in this allegation are instances where records have been destroyed by a third party, for example a landlord, and the individual under investigation was given ample opportunity to prevent the action.

Technical matters

Technical matters include persistent breaches of regulations regarding the duty to file accounts or returns with Companies House as well as persistent failure to file tax returns. Other matters covered by this allegation are breaches of regulations, such as those relating to financial services, employing illegal workers or failing to safeguard tenants’ deposits.

Criminal matters

Criminal matters include instances of an individual acting as a director of a company whilst disqualified, either by virtue of an undischarged bankruptcy or debt relief order or a current disqualification, bankruptcy restrictions or debt relief restrictions order or undertaking. Similarly, any director who allows such an individual to act, whilst aware of their disqualified status, may also be disqualified.

Other criminal matters include fraud, falsification of records and other breaches of law relating to the operation of the company; although this list is not exhaustive.

3. Companies Wound Up in the Public Interest

These statistics relate to all companies registered at Companies House who carry out business in the United Kingdom (UK). This includes UK and foreign companies.

Following an investigation into the corporate abuse by a limited company or limited liability partnership, particularly one that is actively trading, the Insolvency Service can apply to the court to have the company put into compulsory liquidation, with the official receiver appointed to investigate and wind up its affairs. The purpose of liquidation is to protect and sell the company’s assets and distribute the proceeds to its creditors. However, the official receiver also has a duty to investigate the affairs of the company and may report any misconduct to either the Insolvency Service or the relevant prosecuting authority and this may lead to director disqualification proceedings, or a criminal investigation or both. In the case of a company that has been wound up in the public interest, the official receiver’s investigation will build upon the previous Companies Act enquiry. At the end of the process, the company is dissolved.

Winding up in the public interest can also be a powerful tool to disrupt fraudulent or criminal behaviour by removing the companies used to perpetuate the crimes.

Corporate abuse could include serious misconduct, fraud, scams or sharp practice in the way the company operates.

The number of companies wound up in the public interest is included within the statistics on total new compulsory liquidation cases in the quarterly Insolvency Statistics, which reports on the number of new company insolvency cases in England and Wales.

Investigations into live companies are confidential until a winding-up order is made. Some investigations do not result in the company being wound up and are not included in the Insolvency Service Enforcement Outcomes statistics.

The power to investigate live companies is provided by Part XIV of the Companies Act 1985.

4. Bankruptcy and Debt Relief Restrictions Orders and Undertakings

These statistics relate to individuals that are subject to a bankruptcy or debt relief order in England and Wales, where the individual is considered to have been dishonest or blameworthy.

There are separate enforcement measures in Scotland and Northern Ireland for insolvent individuals. They are not represented in the Insolvency Service Enforcement Outcomes statistics as they are enforced by Accountant in Bankruptcy for Scotland and the Department for the Economy in Northern Ireland.

Bankruptcy restrictions orders and undertakings are carried out under the Insolvency Act 1986.

Debt relief orders and the associated restrictions orders and undertakings were introduced by the Tribunals, Courts and Enforcement Act 2007, with effect from April 2009.

The application for a bankruptcy or debt relief restrictions order or undertaking is typically made within 12 months of the bankruptcy order or debt relief order being made unless leave of the court is obtained. If discharge from bankruptcy is suspended, the time permitted to apply for a restrictions order is extended to the length of the suspension.

Conduct both before and during the bankruptcy or debt relief order is taken into account when considering whether to apply for a restrictions order or undertaking. However, as a result of the introduction of the Enterprise Act 2002, conduct before April 2004 cannot be used as evidence of misconduct.

Behaviour that could lead to a restrictions order being sought includes:

• Hiding assets
• Incurring debts knowing there was no reasonable chance of repaying
• Preferential payment of certain creditors
• Gambling, rash speculation or being unreasonably extravagant
• Fraud or fraudulent breach of trust
• Causing debts to increase by neglecting business affairs
• Carrying on a business with the knowledge that debts could not be paid

The restrictions placed on an individual subject to a bankruptcy or debt relief restrictions order or undertaking are the same as those restrictions an individual is subject to under a bankruptcy order or debt relief order. These are:

• The individual must disclose their status when applying for credit over £500.
• The individual must disclose to those they wish to do business with the name under which they were made insolvent.
• They may not act as a director of a company or take part in its promotion, formation or management unless permission is obtained from the court.
• They may not act as an insolvency practitioner.
• They may not act as a Member of Parliament in England and Wales

If these restrictions are breached, the individual may be prosecuted. If found guilty, this could result in criminal penalties, such as a fine or imprisonment. Additionally, if the individual has engaged in the management or otherwise of a company without the court’s permission, they may be held personally liable for any debts of the company that arise throughout the time they acted in breach.

If it is considered appropriate, it is possible to apply to the court for an interim bankruptcy or debt relief restrictions order to be applied. If granted, restrictions will take effect from the date of the interim order until the court considers the application for a bankruptcy or debt relief restrictions order. These are not included in the Insolvency Service Enforcement Outcomes.

Details of a restrictions order or undertaking are made available online on the Individual Insolvency Register and are available until 3 months after the order or undertaking expires.

If the bankruptcy order is annulled because it ought not to have been made, any restrictions order or undertaking will also automatically be annulled and details will be removed from the public register.

If the debt relief order is revoked because it ought not to have been made, the circumstances of the individual changed or the individual has not cooperated with the official receiver, the debt relief restrictions order or undertaking will still apply unless the court decides otherwise.

4.1 Restrictions Orders and Undertakings

A bankruptcy or debt relief restrictions order is made by the court after considering the evidence against the individual. The length of the restrictions order can be 2 to 15 years, depending on the severity of the misconduct.

If the individual accepts the allegations, they may offer to enter into a bankruptcy or debt relief restrictions undertaking. This has the same effect as an order but does not involve court proceedings.

4.2 Restrictions Orders and Undertakings Allegations

It is possible for more than one allegation to be made in each bankruptcy or debt relief restrictions case. Therefore, the total number of allegations made will not equal the total number of restrictions obtained. Subsidiary allegations are not always recorded on the administrative system. The allegations shown in Insolvency Service Enforcement Outcomes relate to the date the bankruptcy or debt relief restrictions order or undertaking was made, as opposed to the date the allegation was made.

4.3 Restrictions Orders and Undertakings Allegation Categories

The fact that an individual becomes insolvent does not on its own amount to unfit conduct. The primary purpose of bankruptcy or debt relief restriction is to protect the public and deter future misconduct. Hence it needs to be shown that the bankrupt’s or debtor’s actions were reckless, culpable or dishonest, and that they caused real loss to creditors.

This Section provides more detail about the types of behaviours that can lead to a bankruptcy or debt relief restrictions order or undertaking under the categories presented in Insolvency Service Enforcement Outcomes. The allegations made in relation to bankruptcy and debt relief restrictions orders and undertakings are more varied than those made in director disqualification cases. This is to allow for the provision of misconduct by trading and non-trading individuals.

Failure to preserve or keep proper accounting records

Although the requirement on a bankrupt to keep accounts was repealed by the Enterprise Act 2002 with effect from 1 April 2004, the bankrupt is still required to account to the official receiver for the loss of any substantial part of their property, and deliver to the official receiver, on request, any records in their possession or control.

Gambling, rash or hazardous speculation or unreasonable extravagance

Gambling is defined by the Gambling Act 2005, and includes gaming (playing a game of chance for a prize), betting on the outcome of a race, competition or other event, the likelihood of something occurring, or whether anything is true or not and participation in a lottery. This excludes spread betting and participation in the national lottery.

Where an individual has been gambling when already insolvent or has become insolvent as a result of losses sustained as a result of gambling, they are considered to have taken risks with money owed to others.

Neglect of business affairs contributing to the bankruptcy

This allegation is based on the neglect of business affairs which may have materially contributed to, or increased the extent of, the bankruptcy. Neglect includes the failure to care for properly, to disregard, not pay proper attention to or a failure to do something.

The most common form of neglect is unfair treatment of the Crown, which is also a common allegation in director disqualification cases. Also included is neglect of statutory and regulatory requirements placed on business and neglect relating to accounting records.

Fraud

There are three ways in which a general offence of fraud can be made: false representation; failing to disclose information; and abuse of position. The Fraud Act 2006 also contains a new offence of fraudulent trading applicable to non-corporate traders.

Non co-operation

When a bankrupt fails to co-operate with the proceedings, the legislation provides a number of alternatives in both enforcing co-operation, penalising the non co-operator, and protecting the public from their behaviour.

The appropriate response to a failure to co-operate is to apply for a suspension of the individual’s discharge from bankruptcy as quickly as possible. This is usually sufficient to obtain co-operation.

Non co-operation of an individual subject to a debt relief order would result in the debt relief order being revoked. Should the individual later co-operate (thus giving reason for the suspension of their discharge to be lifted) but, as a result, information comes to light which suggests other misconduct then a restrictions order may be applied for on the basis of that information.

If, for example, the result of non-co-operation is to allow time for a bankrupt to dissipate assets which the official receiver could have claimed for the estate (say an inheritance or the balance in a bank account) the principle allegation will be the dissipation of the asset. The failure to co-operate is a contributing factor which may result in a longer period of restriction.

Second bankruptcy

The Enterprise Act 2002 says that the court shall consider whether the individual was subject to a bankruptcy or debt relief order at some time during the period of six years ending with the date of the bankruptcy or debt relief order to which the restrictions order application relates. A previous failure is ‘a matter for consideration’. It is not included in the list of grounds for a restrictions order or undertaking.

Applications for bankruptcy or debt relief restrictions order purely on the grounds of a previous failure would be against the spirit of the Act, particularly if the earlier failure was ‘honest’. Therefore, there must be unfit conduct in respect of the current bankruptcy, before an application can be made. However, if it can be shown that a bankrupt has failed to learn from previous mistakes, the court may consider a higher period.

Prosecutable matters

Prosecutable matters primarily comprise breaches of the Insolvency Act 1986, such as obtaining credit whilst an undischarged bankrupt. However, certain cases may indicate fraud or theft, and these, together with any insolvency offences, will be reported to the appropriate prosecuting authority. They may also form the basis of bankruptcy restriction or debt relief restriction proceedings.

Disposal of goods subject to hire purchase agreements

Once a person has been made bankrupt or has obtained a debt relief order, they commit an offence if, in the 12 months before petition or in the initial period, they have disposed of property obtained on credit and not paid for at the time of the disposal. If the value of the property is higher than £500, a criminal referral may be made.

The definition of property includes money, land and things in action, as well as goods.

It is also possible that disposing of goods subject to a hire purchase agreement could result in an allegation under the Theft Act 1968.

Dissipation of assets

Dissipation of assets is an example of a transaction to the detriment of creditors. Specifically, it is aimed at the situation when an individual is considered to have unreasonably disposed of assets without regard to existing creditors.

An example might be where the individual has received a sum of money and has chosen to spend it on something other than to pay back their debt.

The criticism is that when the individual received the money, they chose not to repay and had no reasonable means of otherwise paying their commitments, when a reasonable person would have used the funds to repay creditors. The individual’s state of knowledge and expectations at the time they disposed of the funds is key to the allegation, as it is the decision not to repay existing creditors at that time that is being criticised, not what they spent the money on.

Non-disclosure of assets

A bankrupt has a duty to disclose all property and other assets to the official receiver and/or trustee, and subject to a saving for legitimate business or domestic matters, to disclose full details of any past disposal of property that would otherwise have been included in the estate. Failure to do so may make the bankrupt liable to criminal penalties under the Insolvency Act 1986 or to a bankruptcy restrictions order if the value of the assets is less that £4,000.

In order to make this allegation, it must be shown that the bankrupt had knowledge of the assets and they wilfully omitted the information, as opposed to innocent oversight as a result of genuine forgetfulness.

In the case of a debt relief order, if an asset is not disclosed that would have resulted in the debt relief order being declined, the debt relief order would be revoked. If it was felt that the omission was sufficiently serious, a debt relief restrictions order could also be applied for.

5. Criminal Charges Outcomes

These statistics relate to all criminal prosecutions in England and Wales, and their outcomes in terms of sentences imposed, the length of sentences, and size of financial order. Data are only held since 1 April 2016 and therefore do not cover the full historical time series.

5.1 Criminal charges and sentences imposed

Criminal charges will lead to an acquittal (where the individual is found innocent) or a conviction. This Section provides more detail about the outcomes of criminal prosecutions for those convicted, as presented in the Insolvency Service Enforcement Outcomes statistics.

Absolute Discharge

No further action is taken, since either the offence was very minor, or the court considers that the experience has been enough of a deterrent. The offender will receive a criminal record.

Community Order

A community order will be imposed for offences that are serious but not so serious as to warrant custody, and include community punishment orders, curfew orders, hospital orders, rehabilitation orders, supervision orders and unpaid work.

Conditional Discharge

The offender is released, and the offence registered on their criminal record. No further action is taken unless they commit a further offence within a time decided by the court (no more than three years).

Cost Order

A cost order states that one party should pay some or all of the other party’s legal costs.

Disqualification

In this context ‘disqualification’ refers to a person who is disqualified, for a specified period, from becoming a director of a company, or directly or indirectly being concerned or taking part in the promotion, formation or management of a company without permission from the court.

Financial order

A compensation order or a confiscation order.

A compensation order requires the defendant to pay compensation to a party that has suffered loss or damage resulting from the offence.

If an individual is convicted of an offence resulting in financial gain, a confiscation order may be imposed to prevent the defendant from benefiting from the proceeds of their crime.

Fine

The court can order that the offender pays a fine.

Imprisonment

For the most serious offences the court may impose an immediate imprisonment sentence or a suspended imprisonment sentence which is carried out in the community. The person has to meet certain conditions, and will be sent to prison if they break the conditions of their sentence.

No Separate Penalty

Where the defendant has been convicted of more than one offence, the court is entitled to impose a penalty for one offence and make an order of ‘no separate penalty’ for the remaining offences, if it is thought that an adequate sentence has already been imposed.

Victim Surcharge

A penalty applied to people convicted of offences, in addition to a conditional discharge, a fine, or a community or custodial sentence, in order to provide compensation for the victims of crime.