“Under investigation”, it’s not a nice phrase in any situation. In fact it probably ranks alongside phrases like “routine enquiries” in terms of expressions you don’t want to hear, at least not when directed at you. In the real world however, investigations can be triggered automatically, enquiries are often routine and frankly organisations like the police, HMRC and the Insolvency Service generally have better ways to spend their time than trying to catch people out for minor mistakes. The purpose of most investigations, including ones by the insolvency service is generally just to find out what went wrong and if anything can be done to stop it happening again. Sanctions are generally only applied where there is evidence of serious wrongdoing. Given the current economic climate, it’s to be expected that there will be an increase in company insolvencies, so here is a brief guide as to what to expect.
Compulsory liquidations automatically trigger an Insolvency Service investigation
It’s important to understand that many Insolvency Service investigations are the result of the legal requirement for them to investigate any incidence of company insolvency regardless of whether or not there is any suggestion of wrongdoing on the part of company directors (or indeed anyone else). The role of the Insolvency Service is to analyse the events which led up to the insolvency and determine if there is any evidence of malicious behaviour (such as deliberate asset stripping). They are not there to punish simple errors of judgement or basic mistakes, even if the perfect vision of hindsight shows that insolvency could have been avoided if another course of action had been taken.
The Insolvency Service itself can only levy civil penalties
The Insolvency Service can levy financial and commercial penalties and these can, indeed be severe, but they can’t send anyone to prison. Having said that, if they find evidence of criminal wrongdoing, they can pass this on to the police who will then decide what action, if any, to take.
Interviews are all part and parcel of the investigation
In principle, the Insolvency Service can interview anyone it likes with a connection to the company. In practice, those higher up the management ladder, i.e. in positions of executive authority are far more likely to be interviewed than lower-level employees. Anybody involved in providing legal or financial advice or processing legal or financial transactions is also likely to get a visit, even if they are external to the company, i.e. providing the services on an outsourced basis.
Rudeness is unlikely to deter them
There are certain types of jobs for which a thick skin is pretty much mandatory and the Insolvency Service is arguably one of them. Therefore if you think that being obstructive and/or rude will send them away more quickly, then please think again. If anything such behaviour runs the risk of triggering their suspicions that you have something to hide and making them more determined to uncover what it is. To be perfectly blunt, a visit from the Insolvency Service is rather like a visit to the dentist for a filling. In spite of the standard official line that “this won’t hurt a bit”, there is actually a good chance that you are going to feel some degree of pain, although in this case it is probably more likely to be emotional than physical and it will probably be at a lower level than you feared. Understand the fact that the Insolvency Service have a job to do and need to ensure all their boxes are ticked before they can move on and remember that they need to move on before you can. Hence it is in your best interests to be polite and cooperative.