The consultation proposes broad changes to the four-decades-old regime, including greater powers for the UK Insolvency Service and a new director “restrictions” regime.

By Pamela Reddy and Matthew Unsworth

Key Points

  • The consultation proposes that the Insolvency Service should have the power to disqualify directors without needing to apply to court.
  • Directors could become vulnerable to a new “restrictions” regime for lower-level misconduct.
  • There is no proposal to clarify the maximum timeline for Insolvency Service investigations into solvent companies, while the maximum timeline for certain cases into insolvent companies could increase from three to five years.

On 25 March 2025, the UK government launched a consultation (the Consultation) on various proposals to reform the UK corporate civil enforcement regime, which is administered by the UK Insolvency Service. The Consultation is seeking views on 11 proposals relating to the structure and procedure of the corporate civil enforcement regime, as well as the Insolvency Service’s information-gathering powers.

The government’s proposals are wide-ranging and have implications for solvent companies and their directors facing investigation by the Insolvency Service as well as companies that have become insolvent or have been dissolved. We set out some key takeaways below.

Insolvency Service to Replace Court as Decision-maker for Director Disqualifications

Proposal: The Consultation proposes that the Insolvency Service (on behalf of the Secretary of State) should replace the court as the decision-making body for director disqualifications. Currently, the Insolvency Service may apply for a disqualification order if it considers that an order is “expedient in the public interest” but the court determines whether the test for disqualification is met. The government’s proposal would see the Insolvency Service assume both the investigative and decision-making roles — albeit the decision-making powers would not be exercised by the investigators. Directors would have a statutory right to appeal to the First-tier Tribunal within 42 days from the date notice of disqualification is served (thereafter, they could take their case to the Upper Tribunal and then to the Court of Appeal).

Rationale: The government’s rationale for transferring decision-making authority to the Insolvency Service is primarily to improve time- and cost-efficiency relative to court proceedings. The consultation paper notes that the average length of time to secure a disqualification undertaking prior to proceedings being issued is 22 months, versus 37 months for obtaining a disqualification order through the court. The government also argues that its proposal would bring the disqualification process in line with the enforcement mechanisms used by other professional and regulatory bodies, such as the Charity Commission.

Comment: Although the government’s proposal may lead to time and cost savings, the consultation paper notes that: (a) the majority of disqualification proceedings are already settled by way of undertakings rather than via lengthy court proceedings;1 and (b) directors of larger corporates are likely to have the benefit of D&O insurance, in which case the cost of court proceedings is less likely to be a barrier to challenging disqualification.

If the proposal were implemented, the Insolvency Service would no longer automatically be required to make its case for disqualification to a court. The burden would shift to directors to proactively challenge the decision to disqualify via the tribunal. This may lead to some efficiency savings compared with the current model — in particular, it would avoid court proceedings being issued every time a director failed to even respond to a notice of disqualification. However, there will be legitimate concerns from directors that an important procedural protection against disqualification is being withdrawn (notwithstanding the tribunal appeal route), and that disqualification orders may be made more readily in future.

The consultation paper cites the Charity Commission’s enforcement mechanism as a comparable example, but this operates in a materially different context. The scale of director disqualifications is much greater, with 1,036 directors disqualified in 2024/25 compared with only 37 charity trustees. The enforcement priorities in the charitable sector are also somewhat unique, and rulings from the First-tier Tribunal (Charity) suggest a desire to balance enforcing high standards and upholding trust in charities with a degree of leniency to ensure volunteers are not deterred from acting as trustees (given the important public service role they perform). Only one trustee disqualification decision by the Charity Commission has been successfully challenged to date, but experience from other professional services regulators suggests a mixed track record when disciplinary powers are transferred away from the courts.

Introduction of Director Restrictions Regime

Proposal: The government has proposed an administrative process to impose three-year restrictions on directors as a less severe alternative to disqualification for lower-level misconduct which doesn’t involve deliberate or wilful wrongdoing. Examples include failure to adhere to company filing requirements on two or more occasions, failure to file returns with HMRC, and inadequate accounting records in circumstances where there is no evidence of corporate abuse.

Restrictions would be imposed at the discretion of the Insolvency Service, and would comprise requirements to, for example, have a joint bank signatory, appoint at least one co-director, and maintain a minimum level of paid-up capital. The Consultation also suggests the possibility of allowing directors to undertake an educational course to avoid restrictions being imposed (though this could only be used on one occasion).

Rationale: The Consultation presents the proposed restrictions regime as a proportionate response to many kinds of conduct that have historically been difficult for the Insolvency Service to deal with effectively. The government argues that it would provide a middle ground between taking no action in response to wrongdoing and the time-consuming, costly, and often harsh option of pursuing disqualification.

Comment: This new enforcement option risks bringing many more directors into the corporate civil enforcement regime who otherwise would not have been subject to even a short period of disqualification. For example, a director can currently be disqualified following three or more convictions for failing to file accounts,2 yet, if this proposal is implemented, restrictions could be imposed after just two missed deadlines.

This potential expansion of the Insolvency Service’s enforcement remit is particularly significant in the context of the recent increase in enforcement activity by Companies House, which has been strengthened by increased funding, a significantly larger headcount, and new powers under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). Companies House has reported an increase from 436 charges for late filing of annual accounts in 2021-21 to 2,707 charges in 2024-25, and an increase in the conviction rate for these charges from approximately 50% to 60%.3 The introduction of restrictions could compound this effect, potentially making directors who have engaged in relatively low-level misconduct like late filing of accounts vulnerable to both prosecution by Companies House and subsequent Insolvency Service enforcement. Post-ECCTA, the enforcement remit of Companies House has been extended beyond late filings to various new offences designed to prevent abuse of the companies register as well as sweeping powers to impose civil financial penalties. The government has reported that Companies House and the Insolvency Service have deepened their partnership and are increasingly collaborating to investigate and sanction corporate misconduct.4

There are also clear reputational consequences for a director of having restrictions imposed, not least because the Consultation suggests there would be a public register of restricted directors.

Extension of Timeframe for Investigations Into Insolvent or Dissolved Companies; No Clarity on Solvent Company Investigations

Proposal: Currently, the Insolvency Service must bring disqualification proceedings against directors of companies that have become insolvent or been dissolved within three years of the date of insolvency or dissolution (section 7(2) CDDA). The government has proposed that, for cases deemed “complex”, the usual three-year timeframe should be increased to five years. The Insolvency Service (on behalf of the Secretary of State) would have discretion whether to allocate a case to the standard track or the complex track, having regard to factors such as: the number of directors in the company; the size of the company and whether it was part of a group; the volume and complexity of the company’s records; and the complexity of the alleged misconduct. The consultation paper notes that appropriate guardrails would be put in place to ensure that the complex track was not abused, including ensuring that the decision to designate a case as “complex” could not be made by the Insolvency Service case team.

Rationale: The government believes that this change is necessary to allow sufficient time to investigate large-scale, nationally significant cases involving complex corporate structures and fact patterns, and to ensure that appropriate outcomes are reached in the public interest. The consultation paper notes that, on occasion, the Secretary of State has been compelled to issue disqualification proceedings protectively prior to the three-year deadline before finalising its case, which risks causing triggering protracted litigation and a rapid escalation in costs.

Comment: According to the Consultation, the Insolvency Service takes an average of 21 months to investigate disqualification cases but the largest and most complicated investigations could reasonably exceed three years. The consultation paper suggests that five years would be in line with major investigations by other government regulators and prosecuting bodies, but this is an imperfect comparison. The average investigation by the Serious Fraud Office takes 4.3 years from opening to the first outcome, however, these investigations are typically more complex, more likely to be multi-jurisdictional, and often subject to delays due to obtaining material from overseas.5

The consultation paper does not address the timeframe for investigations into solvent companies. The law does not currently stipulate a deadline for commencing disqualification proceedings if the relevant company is solvent, and it is disappointing that the government has not proposed to fill this gap, especially given the pronounced impact that investigations can have on businesses that are still trading. The lack of a definitive end date for investigations into solvent companies creates significant uncertainty for directors trying to balance the day-to-day running of their businesses with responding to protracted enquiries.

This post was prepared with the assistance of Luiza Aguilar in the London office of Latham & Watkins.

  1. The consultation paper notes that 81% of all disqualifications were obtained by way of pre-issue undertakings but does not give an overall figure. The Insolvency Service no longer publishes a breakdown of the percentage of disqualifications secured via undertakings versus court orders but, as of 2022/23, the total percentage stood at 87%, see here: https://www.gov.uk/government/statistics/insolvency-service-enforcement-outcomes-monthly-data-tables-202223/commentary-insolvency-service-enforcement-outcomes-202223#. ↩︎
  2. Section 3(2) of the Company Directors Disqualification Act 1986. ↩︎
  3. See Companies House management information April 2024 to March 2025, Table 6, available here: https://www.gov.uk/government/statistical-data-sets/companies-house-management-information-april-2024-to-march-2025. ↩︎
  4. Second Progress Report of the Implementation and Operation of Parts 1 to 3 of ECCTA, Department for Business & Trade, available here: https://assets.publishing.service.gov.uk/media/685010789d538361ad2da732/second-progress-report-on-the-implementation-and-operation-of-parts-1-to-3-of-the-economic-crime-and-corporate-transparency-act-2023.pdf. ↩︎
  5. See SFO Annual Report and Accounts 2024-25, page 22, available here: https://assets.publishing.service.gov.uk/media/686f95fc10d550c668de3d9c/SFO_Annual_Report_and_Accounts_2024-25.pdf. ↩︎