6th February, 2023
A Section 16 letter is issued by the Insolvency Service in relation to potential company insolvency and director disqualification proceedings. It is part of the formal process of proceedings that can result in a director being disqualified, and ultimately unable to run any Limited Company for a period of time.
What Does a Section 16 Letter Include?
When a company becomes insolvent, meaning there is no way it can pay off its creditors and debts, directors may be held responsible for the company’s failure and given personal liability for its debts. One of the actions that can be taken against such directors is a disqualification order from a court. This involves the questioning of directors under oath on their conduct as directors, and their knowledge of the circumstances that led to the insolvency of the company.
What Action Should You Take When You Receive a Section 16 Letter?
If a Section 16 letter has been issued to you, it is important to take action immediately. You will need to seek professional advice and inform the Insolvency Service of any disputes you may have with these allegations. If the Insolvency Service suspects the company has been insolvent for some time, you may be requested to provide information about the financial operations of the business over the past 12-18 months, including details on any loans, grants or other support received. Specific examples of this could include the Coronavirus Business Interruption Loan Scheme (CBILs), or Bounce Back Loans (BBLs). In these scenarios, you may be required to provide information on how these funds were utilised and accessed, as both these initiatives require repayments to be made in certain stipulated timeframes. Failure to do so could result in further legal action being taken against you as director.
Summary
Overall, a Section 16 letter issued by the Insolvency Service serves as a warning that you may face disqualification proceedings if you fail to comply with their request for additional information or if they suspect there has been wrongful or dishonest trading leading up to the insolvency of your company. It is therefore important to respond promptly and act at once if you have received a Section 16 letter.