The UK government’s corporate insolvency regulator (the Insolvency Service) investigates too few cases of alleged misconduct by company directors.
This is the view of the UK’s Association of Business Recovery Professionals (known as “R3”), which represents 97% of the UK’s Insolvency Practitioners.
In a media release – “Public at risk from ‘dodgy directors’” – on 10 January 2011, R3 (which stands for rescue, recovery, renewal) says its research shows that:
“The number of directors disqualified by the government for misconduct, such as fraud, has failed to keep pace with an increased number of reports of potential misconduct.”
“The percentage of reports taken forward by the Insolvency Service (i.e. disqualifications) has halved from 40% in 2003/4 to 20% in 2009/10. Fraudulent activity is known to increase during tough economic times. In 2009/10, insolvency practitioners submitted 7,030 reports on directors’ behaviour which they believed warranted further investigation. However, in that year, only 1,387 cases were concluded by the Insolvency Service.”
R3’s President Steven Law commented:
“This mechanism is in place to protect the general public and other businesses from dishonest directors. Not punishing directors who are blameworthy sends out a dangerous message to others.”
To read a copy R3’s media release, go to https://www.r3.org.uk/pressandpublic/default.asp?page=1&i=523&id=548#PressStory
R3 has published a paper headed “Directors’ Disqualification: Room for improvement”. It provides some interesting statistics, summarizes actual case studies – of “cases when directors have not been disqualified despite the insolvency practitioner reporting obvious misconduct” – and makes 5 recommendations. A copy is available HERE.