The Insolvency Service has for many decades been the Government department responsible for the oversight of bankruptcies, compulsory insolvencies and, in more serious cases, the disqualification of individual directors.
The Insolvency Service has recently published its Investigations and Enforcement Strategy Report for the next 5 years. Providing the foreword to the report, Justin Madders MP, the Minister for Employment Rights, Competition and Markets described the strategy as representing "a significant change to the way the Insolvency Service interprets its investigative functions and its interactions with other regulators and the wider insolvency profession, giving it a wider corporate enforcement remit and strengthening the collective fight against fraudsters and others who would seek to abuse corporate structures."
Government legislation and enforcement measures affecting corporates has been on a steady increase, particularly following the pressure placed on the Treasury due to lacklustre recovery of COVID fraud proceeds. Most recently the Economic Crime and Corporate Transparency Act 2023 ("ECCTA") has introduced further corporate governance requirements to prevent fraud and additional Companies House enforcement powers, all of which, government prosecutors are eager to start deploying to increase investigations with a view to potential recovery. This is not just limited to the Insolvency Service – both HMRC and the SFO have made public statements of their objectives under ECCTA.
It is perhaps not surprising that the Insolvency Service's new strategy focuses on both new and old powers to (1) investigate fraud and wrongdoing, and (2) to freeze and recover assets.
To do this there is also a recognition that the Insolvency Service's gaze will need to shift to solvent rather than insolvent companies and the individuals in charge of those companies, something which is new territory for the executive agency. Until now, the Insolvency Service has been chiefly concentrated on the investigation and enforcement of insolvency offences i.e. bankruptcy restriction orders, director disqualification and insolvency-specific prosecutions.
The new drive comes in part from fresh funding to the Insolvency Service from ECCTA, by way of Companies House fee income and penalty revenue. This funding gives the Insolvency Service the remit to enforce new criminal offences arising from increased Companies House governance.
One of the Insolvency Service's aims is to be in a position to shut down solvent companies earlier and recover assets which are the proceeds of that wrongdoing. As well as being able to prosecute cases without the permission of the CPS, the Insolvency Service has significant powers to seize assets and to conduct civil recovery proceedings. As this is new territory for the Insolvency Service, we will have to wait with interest to see if they react quickly enough to identify wrongdoing to the appropriate level and to move with equal speed to prevent those under investigation from putting assets beyond the reach of the Insolvency Service's powers.
In this endeavour, the Insolvency Service says that it is not looking to take cases from other agencies, instead, where appropriate they will work with and "deepen ties" with HMRC, the NCA and the SFO. This suggests that the Insolvency Service will not be starting investigations of companies and individuals from scratch, but be able to benefit from historic data held by other agencies.
Although there is a lot of work still to be done as we enter the 5 year strategy, if it is to be fulfilled, we should start to see an increase in the number of investigations being opened by the Insolvency Service into solvent companies and individuals in order to gain traction. We can expect these to focus on exploitation of corporate tax structures, Companies House offences and supply chain fraud. Companies and company officers should prepare for such heightened scrutiny and be aware of the Insolvency Service's investigatory ambitions.