Insolvency being treated like a director's piggybank
Posted by admin in Management & Execution on Tue, 03/08/2010 - 09:11
The number of directors taking illegal dividends or loans from their companies is on the increase, and it’s been triggered by the income tax increase, according to insolvency experts.
Data from the Insolvency Service shows that 2,169 directors of insolvent companies faced disqualification proceedings in the year to March 31 2010, up 17% from 1,852 the year before.
The temptation by directors and owners of businesses to pay themselves an abnormally large special dividend before the increase in the highest rate income tax band to 50% on April 6 2010 may have triggered the spate of illegal dividends, said Keith Stevens, a partner at Wilkins Kennedy.
“A couple of holiday homes, a taste for sports cars and an expensive divorce settlement will normally come with a big debt that needs servicing every month. For some owner-managers it seems easier to break the rules and take an illegal loan from the company than to curb their spending,” he added.
According to Stevens, eight out of the last ten insolvency cases he has taken on have led to investigations over the directors allegedly taking illegal dividends or loans from the company. These special dividends would be considered illegal if the company did not have the accumulated profits to cover the dividend payment.
“HMRC wants these directors banned and they want to pursue these directors through the courts for all the money that they can. That is an obligation that HMRC have, so directors need to beware of that,” added Stevens. “Directors need to be careful not to treat their business as a personal piggybank.”
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