The Insolvency Service last year launched 36 per cent more investigations into the alleged misconduct of directors of insolvent companies than the year before, data from international law firm RPC shows.
According to RPC, the number of investigations increased from an average of 142 per month between April 2021 and March 2022 to 193 between 1 April 2022 and December 31 2022.
The data also reveals that the number of cases referred to the Insolvency Service compliance and targeting department, which investigates corporate abuse, more than doubled from an average of 528 per month to 1,077 in the same period.
The findings come as high interest rates and a stagnant economy have battered firms, contributing to a huge rise in insolvencies.
James Wickes, partner in RPC’s professional and financial risks team, said: “With insolvencies on the rise, we can expect to see more instances of fraud and other types of misconduct coming to light.”
Last month, the Insolvency Service reported that more companies in England and Wales had entered insolvency in March than at any point since monthly records began.
Business directors have also been guilty of misusing Covid-19 support schemes issued by the government, with the Financial Times reporting last year that more than one in three UK company directors disqualified in April and May 2022 were found to have abused the schemes.
In 2022/23, a total of 459 directors were disqualified by the Insolvency Service for the practice, according to the RPC’s analysis.
Wickes said that as a result of the uptick in investigations, he anticipated an increase in claims made under directors and officers insurance (D&O) policies, which cover directors in legal spats involving corporate wrongdoing.
“As directors of insolvent companies come under heightened scrutiny, D&O insurers will be anticipating an uptick in claims to cover the cost of investigations or penalties,” he said.
“Post-insolvency actions against directors has historically been one of the main sources of claims on D&O policies.”