Government proposes major reforms to tackle dodgy directors

25 March 2026

Last updated: 26 March 2026

David Menzies
Director of Practice, ICAS

The UK government has launched a wide‑ranging consultation on proposed reforms to the corporate civil enforcement regime. The proposals – which would represent the most significant overhaul of the regime in nearly 40 years – aim to strengthen protections for creditors, enhance market integrity and modernise the tools available for tackling corporate abuse.

The consultation, ‘Corporate Civil Enforcement Reforms’, seeks views on 11 proposals that would reshape how the Insolvency Service investigates and responds to corporate misconduct.

Why the consultation is being launched

The government notes that the existing civil enforcement framework, which includes director disqualification and public‑interest winding‑up powers, has been largely unchanged for four decades. During that time, business practices, corporate structures and economic crime have become significantly more complex.

The Insolvency Service’s remit has expanded in recent years – particularly following the Economic Crime and Corporate Transparency Act 2023 – to tackle corporate abuse more proactively, including in live companies. However, the government believes the current tools don’t provide sufficient flexibility to deal effectively with the full spectrum of misconduct.

Parliament and stakeholders have urged the Insolvency Service to conduct more enforcement activity. Insolvency practitioners regularly question the director disqualification regime's effectiveness and question the value of director conduct reports, highlighting that their concerns are often not acted upon.

The consultation therefore explores reforms intended to:

Protect the public more effectively.
Improve the deterrent effect on directors.
Increase efficiency and reduce delays in enforcement.
Ensure fairness and proportionality.
Align UK practice with international best practice (e.g. World Bank and UNCITRAL principles).

What is being proposed

The government is consulting on 11 measures grouped into three main categories:

Structural reforms to the enforcement framework

Mandatory disqualification following public‑interest winding‑up

Where a company is wound up in the public interest, the court would automatically disqualify all directors involved at the time of the harmful activities, for a standard period of five years. Safeguards and appeal rights would apply, and further action could extend the period where appropriate.

Introduction of a new ‘Director Restrictions’ regime

A new middle‑tier enforcement option is proposed for lower‑level misconduct. Instead of a full disqualification, directors could continue to act but with safeguards such as:

Being prohibited from acting as a sole director.
Requiring joint bank signatories.
Minimum paid‑up share capital requirements.
Strict compliance with filing and tax obligations.
Restrictions would apply for three years. Breaching the restrictions could lead to full disqualification.

Secretary of State as decision‑maker for disqualification

Decision‑making on disqualification would transfer from the courts to the Secretary of State, with appeals heard by an independent tribunal. The government believes this would reduce delay and cost while preserving fairness.

Strengthened powers to unwind harmful transactions

Several measures seek to improve asset recovery for creditors, including:

Reversing the burden of proof for connected‑party transactions at an undervalue.
Introducing a presumption of insolvency for connected‑party preferences.
Replacing the “grossly exorbitant” test for extortionate credit with a more usable threshold (such as “commercially disproportionate”).
Enabling misfeasance actions against shadow directors.
Disqualification for failure to comply with HMRC security notices.

Courts would be empowered to disqualify a director after a single summary conviction for failing to provide a security required by HMRC, reflecting the seriousness of the conduct and risks to public funds.

Strengthening information‑gathering powers

A series of proposals would expand and clarify the Insolvency Service’s powers to obtain information, including:

Explicitly requiring directors to answer investigators’ questions under section 447 Companies Act 1985.
Modernising the framework governing how information gathered under section 447 can be lawfully shared with other agencies.
Extending information‑gathering powers to investigations involving live and solvent companies where disqualification under section 8 Company Director Disqualification Act 1986 is being considered.

These changes aim to reduce delays caused by ambiguity or lack of investigative powers in live‑company cases.

Procedural reforms

To modernise and improve efficiency, the government is consulting on:

Replacing affidavit requirements with standard witness statements.
Allowing electronic service of documents.
Permitting the choice of Part 7 or Part 8 court procedure depending on case complexity.
Extending the time limit for bringing disqualification proceedings in complex cases from three to five years, to avoid issuing premature “protective” proceedings.

Clear criteria would define what constitutes a complex case, and decisions would be subject to safeguards.

Territorial extent

All proposals apply to England and Wales, and several will also apply to Scotland where insolvency and company law is partly reserved and partly devolved. The proposal on HMRC securities-related director disqualification, the measure concerns UK-wide tax matters and therefore would apply across the UK.