The Insolvency Service has been granted new powers to tackle unfit directors who place their firm in administration to avoid paying subcontractors and suppliers.

The new legislation extends the Insolvency Service’s powers to investigate and disqualify company directors who abuse the company dissolution system.

If misconduct is found, directors can face sanctions including being disqualified as a company director for up to 15 years or, in the most serious of cases, prosecution.

The Business Secretary will also be able to apply to the court for an order to require a former director of a dissolved company, who has been disqualified, to pay compensation to creditors that have lost out due to their fraudulent behaviour.

Insolvency Service accountants will also be able to scruntinise live companies where there is evidence of wrongdoing.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act will also help tackle directors dissolving companies to avoid repaying Government-backed loans taken out during the Coronavirus pandemic.

Business Secretary Kwasi Kwarteng said: “These new powers will curb those rogue directors who seek to avoid paying back their debts, including government loans provided to support businesses and save jobs.

“Government is committed to tackle those who seek to leave the British taxpayer out of pocket by abusing the covid financial support that has been so vital to businesses.

Stephen Pegge, Managing Director of UK Finance, said: “The ability to dissolve a company when necessary is a right reserved in legitimate circumstances where there are no outstanding creditors, however, it can be open to abuse.

“The banking and finance industry therefore supports this legislation which will provide much needed powers to the Insolvency Service to help hold rogue directors to account by providing additional deterrents and easier enforcement of the rules.”