Insolvency trade body R3 has criticised the government after stats showed that in many cases it was failing to investigate and strike off company directors for misconduct.
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In 2009/2010, just 1,387 cases of the 7,000 reports on directors' behaviour submitted by the Insolvency Service were concluded, down 25% in the last eight years.
"This mechanism is in place to protect the general public and other businesses from dishonest directors. Not punishing directors who are blameworthy sends out a dangerous message to others," said R3 president Steven Law.
In more than one third of all cases, a failure to pay tax debts was the main cause for Insolvency Practitioners to report director behaviour but other areas included obtaining personal benefits from the company and the appropriation of assets to other companies.
Law said it wanted the Insolvency Service to install a system to pursue all reports against directors, not just the easier cases, to prevent sequential company failures.
"These are serious infringements that damage the reputation and sucess of UK plc," he added.
Eddie Pacey, managing director at EP Credit Managament and Consultancy, said there was "not enough capacity" in government department to consider all notifications from insolvency practitioners and with the planned public sector spending cuts that was unlikely to change.