The warning was given by Mike Pavitt, council member for the Southern and Thames Valley Region of R3, the UK’s insolvency and restructuring trade body.
He said: “Covid-related loan repayment difficulties have not gone away, especially with new tax burdens anticipated in the spring, and nor, it seems, has the Insolvency Service’s appetite for pursuing director disqualifications linked to them.
“My main fear for directors who have just been doing their best to service legacy Covid-related debts in difficult circumstances is that they fail to seek the right advice early enough and sleepwalk into a disqualification.”
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Mike Pavitt has warned that directors struggling to repay Covid loans may be ‘sleepwalking’ into disqualification if they don’t take the right advice (Image: Southern and Thames Valley Region of R3) The Insolvency Service’s figures show that in the 2023/24 year, 68 per cent of director disqualifications were related to Covid loans.
The 2024/25 year to date is running at 76.5 per cent, with an expectation of 1,200 disqualifications this year.
Mr Pavitt, also a former chairman of R3’s Southern and Thames Valley region, added: “Our analysis of the figures shows that the rate of disqualifications related to Covid loan abuse is higher than ever.
“Also, the average length of director disqualifications is going up significantly and is now 9.3 years, compared to 7.4 years only two years ago, an increase of 25.7 per cent.”
He noted that the Insolvency Service has recommended a higher proportion of cases for disqualification action, despite directors having settled any potential claims against them.
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Mr Pavitt continued: “In the past, such evidence of willingness to compensate any disaffected creditors would often have tipped the scales when considering whether the public interest justified disqualification.
“Directors may perhaps be forgiven, therefore, for concluding that the Insolvency Service have somewhat shifted the goalposts, at least where Covid-related loans are involved.”
Mr Pavitt, lead corporate restructuring and insolvency partner at law firm Paris Smith in Southampton, advised directors not to dissolve or sell their companies for a nominal amount to unregulated firms promising to manage the problem away.
Instead, he urged them to seek legal advice from a qualified and regulated source.
R3’s Southern and Thames Valley region includes Kent, Surrey, Sussex, Buckinghamshire, Oxfordshire, Hampshire, the Isle of Wight, Dorset, Wiltshire and Berkshire.