So far, so good but fining directors already found guilty of dishonest business practices ignores the real issue of making the director disqualification process being as strong a deterrent as it could be – and there’s some reasons for that.
Under-funding has been a constant issue for the authorities to grapple with.
The Insolvency Service is the government body tasked with bringing disqualification proceedings against directors yet its funding has been cut by 40%. So while the number of directors being reported for dishonesty has risen by 20% in the past three years, the number of cases leading to disqualification has remained static.
Secondly, even though Sir Vince talks about disqualification being a punishment for those acting fraudulently including those that continue to run a business through “phoenixing”, the majority of reports made against directors are for fraud-based allegations. Actual disqualification orders are less than 7% of the Insolvency Service’s caseload.
The most common offence that leads to disqualification is non-payment of Crown debt – mainly because it’s easier to prove. Unfortunately directors guilty of this offence are seen as easy pickings for the authorities rather than the harder-to-catch genuine fraudsters.
Our view is that there’s little point in the government looking to increase the level of punishments without also changing the system so the real villains are prosecuted. If you’re increasingly unlikely to be pursued or caught in the first place, why is a fine a deterrent?
My view is that there is little point in the Government looking to increase the level of punishment without also changing the system so the right errant directors are being targeted. If you are increasingly unlikely to be pursued in the first place – why would a fine be a deterrent?
For more information on the type and number of director disqualifications, you can read our Help for Directors article here.