Just one in five reports of misbehaviour by company directors referred by insolvency professionals is resulting in their disqualification, reports The Telegraph.
R3, the insolvency trade body, and Toby Perkins, the shadow small business minister, warned that the Insolvency Service is becoming less able to act on so-called D1 reports submitted about directors who engaged in “poor or dishonest” behaviour, leaving suppliers and customers at risk.
Of the 5,401 reports passed to the Insolvency Service by insolvency professionals in the year to March, just 1,151 — or 21pc — resulted in a disqualification court order or an undertaking, the administrative equivalent. This compares with 27pc last year and 45pc 10 years ago.
Reports are filed when a director’s behaviour is seen as meriting further investigation for potential misconduct.
Lee Manning, R3’s president, said the number of reports being passed to the Insolvency Service had increased during the downturn but “the disqualification process has simply failed to keep up”.
“It’s not apathy at the Insolvency Service, it’s lack of resources. We are reporting [misconduct] and the authorities aren’t acting. Later on, it results in new victims that could have been protected if it wasn’t for [the lack of] resources. Justice needs to be seen to be done.”
Mr Manning insisted it wasn’t a case of insolvency professionals filing fewer reports highlighting serious issues. “If anything, we’re a bit disillusioned and are no longer filing reports in marginal cases,” he said.
He said that even when directors are disqualified, the “process is not followed through, leaving consumers, suppliers and the public at risk”.
According to R3, in the past year one in five insolvency practitioners has seen disqualified directors breaking the terms of their ban — by acting as a director of a company, for example.
One instance involved a report being submitted against a director who had run seven failed businesses. The Insolvency Service did not act.
The Insolvency Service’s annual report, published last month, shows it had cut £60 million from its running costs since the end of 2009, and lost 18pc of its workforce last year. Under a second “exit scheme” this year a further 67 staff left.
“Not least due to the significant staff reductions we have experienced and the operational disruption that this has caused … we have seen a slight fall in investigation output this year,” Graham Horne, the interim chief executive, said in the report.
A spokesman for the Insolvency Service said: “We are still able to investigate the vast majority of disqualification cases which we accept for investigation. We do not duck difficult cases; we have a prioritisation model which considers the public interest and other factors and we are prepared to investigate complex cases — we do not pick low-hanging fruit.”
Mr Perkins said: “These figures demonstrate that more and more delinquent directors are walking away from their responsibilities each year. It’s a question of resources but also of Government needing to take this seriously and show that dishonest people are pursued and that it’s on the side of businesses that do things the right way.”
Mr Manning added: “We need to push up the disqualification rates and make sure those who have been disqualified stick to their terms if we are to maintain public confidence.”