Over 350 years worth of director disqualification caused by accounting matters fraud
Real Business Rescue has analysed ten years worth of data to uncover whether director disqualifications have increased or decreased, if the average length of disqualification has changed and if the pandemic has had a lasting impact on the types of director misconduct.
The number of director disqualification orders and undertakings in the last ten years
In FY2020-21, director disqualifications decreased by almost a quarter (-24% as many businesses turned to Bounce Back Loans (BBL) and furlough to stabilise their cashflow). This suggests that the BBL helped to stabilise some businesses nationwide while, for other organisations, full operations had to either be scaled back or put on pause.
| Financial Year | Total | Total YOY (orders + undertakings) Increase/Decrease |
| 2011/12 | 1,165 | -19.82% |
| 2012/13 | 1,034 | -11.24% |
| 2013/14 | 1,282 | +23.98% |
| 2014/15 | 1,210 | -5.62% |
| 2015/16 | 1,214 | +0.33% |
| 2016/17 | 1,214 | +0.00% |
| 2017/18 | 1,232 | +1.48% |
| 2018/19 | 1,246 | +1.14% |
| 2019/20 | 1,285 | +3.13% |
| 2020/21 | 981 | -23.66% |
| 2021/22 | 802 | -18.25% |
Although there were fewer insolvency investigations during this time, largely because the Insolvency Service wasn’t working on as many cases during the pandemic, the government scheme was misused by numerous businesses across the nation. This caused the UK economy to lose an estimated £4.9bn due to fraudulent misuse of the BBL.
In the financial year 2021/22, a total of 802 disqualification orders and undertakings took place, which is a 31% decrease on the total number of orders and undertakings in FY2011/12, where there were a total of 1,165.
Since the loan was introduced, 16,000 businesses that took out a government-backed Covid loan became insolvent and, as a result, failed to pay back the money. These numbers are expected to rise significantly in the next 12-18 months, as investigations into BBL fraud and misuse increase.
Director disqualification by allegation types
| Offence Type (civil) | Total Cases | Avg. Disqualification* | Total Disqualification* |
| Misappropriation of Assets | 8 | 11 | 92 |
| Bounce Back Loans (BBL) | 125 | 8 | 1,003 |
| Trading at a time when knowingly or unknowingly insolvent | 89 | 7 | 651 |
| Accounting matters | 49 | 7 | 358 |
| Transaction at the detriment of creditors | 130 | 6 | 863 |
| Other (breaking immigration rules, breaching data protection laws etc) | 7 | 6 | 43 |
| Unfair treatment of the Crown | 101 | 5 | 601 |
| *years | |||
A director runs the risk of becoming disqualified if they fail to fulfil their legal and directorial responsibilities. The details of the disqualifications are made public on the Companies House disqualified directors register. In the last three months alone, there have been a total of 509 cases.
Unfair treatment of the Crown is by far the most common allegation over the last 10 years and is associated with 37% of director disqualifications in FY2021/22. We can also see that the pandemic has left an impact on director disqualifications, as the Covid-19 pandemic Bounce Back Loan support has created the second-highest number of cases, with 141 total insolvent disqualifications in the financial year 2021/22.
The last three months of data show that at least 125 fraudulent cases of the BBL Scheme have been recorded. With each disqualification sentence averaging at eight years per director, these cases account for a significant 1,003 years worth of lengthy bans.
The Misappropriation of Assets, also known as Insider Fraud, is a civil offence which carries the longest disqualification period of 11 years. Although just eight cases have been recorded so far, this equates to 92 years worth of being unable to run a business.
Shaun Barton, national online business operations director at Real Business Rescue, comments: “Director disqualification can be due to a range of issues, including wrongful or fraudulent trading, misappropriation of company funds, failing to keep proper business records, and failing to submit statutory accounts and returns.
“During the liquidation process, directors are placed under great scrutiny, particularly if it was initiated by a creditor attempting to recoup their money. It’s imperative, therefore, for directors to take action as soon as possible to prevent unnecessary financial loss for creditors, particularly once they know the company is insolvent.
“The route from investigation to undertakings and orders can be as unique as the business the Insolvency Service investigates. Some choose to voluntarily make a disqualification undertaking. Essentially, this means they disqualify themselves, and in doing so, court action against them ceases.
“A director’s reputation can be badly affected following disqualification, and this may impact their life in terms of future work and business opportunities. The length of the disqualification order is also key and indicative of the seriousness of wrongdoing that took place.
“If the terms of the order are breached, the director can receive a fine or be imprisoned for up to two years, so it’s essential to comply with a disqualification order or undertaking.”
