Recession blamed as number of banned bosses soars

The number of company directors disqualified for criminal malpractice has soared in the last year as bosses go todesperate lengths to avoid the effects of the recession on their businesses, research released today shows.

According to a study by the City law firmWedlake Bell, there was a 72 per cent annual increase in the number of directors of insolvent companies being banned for fraud and theft, as company heads tried to salvage something from their struggling firms.

The research also highlights a 32 per cent increase in the total number of directors being banned, including for non-criminal matters, such as failure to file annual accounts and underpaid corporate tax.

“The increase in disqualification cases being launched over the last year is huge, and it should sound alarm bells for directors of struggling companies that the fulfilment of their obligations could be scrutinised,” said Edward Starling, who is head of Wedlake Bell’s rescue and restructuring arm.

By far the biggest single reason for disqualification, which means directors are prevented from sitting on the board of any company for 15 years, is underpaying tax to HMRC. That accounts for 37 per cent of all banning orders. The study shows that struggling companies are more likely to pay suppliers, rather than settle tax bills.

“These figures show that despite HMRC saying that it will be more lenient toward companies facing major cash flow problems, the Insolvency Service is becoming more aggressive towards directors of failed companies who it thinks are deliberately avoiding paying tax. Many directors will choose to pay suppliers first as they consider this more important for the immediate survival of their business. However, they mustnotforget that failing to pay HMRC whilst continuing trading could eventually land them into trouble personally,” said Mr Starling.

Atotal of 1,852 directors were banned last year and Wedlake Bell says it expects the number to increase in 2009 as more companies slip into insolvency and agreater number of directors are tempted to try and circumvent the rules.