Recent Company failures prompt the government to overhaul the insolvency rule
The Government has announced plans to improve the UK’s corporate governance framework to ensure the UK remains one of the best places to start and grow a business.
The rules include:
- Directors selling companies recklessly to face tough new sanctions including fines and disqualification
- Creditors could have money returned to them by reversing inappropriate asset stripping
- Directors dissolving companies to dodge debts and avoid facing accusations of misconduct to face investigation for the first time
- Strengthening corporate responsibility will enhance the UK’s business environment and ensure it remains one of the best places to start and grow a business
The Government has launched a consultation to improve the UK’s corporate governance framework and ensure the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency.
The vast majority of UK companies are run fairly and responsibly, but a small number of recent corporate governance failures have raised concerns that company directors can unfairly shield themselves from the effects of insolvency and – in the worst cases – profit from business failures while workers and small suppliers lose out.
Following last year’s corporate governance reforms to increase boardroom accountability and transparency of big business, the government will today raise standards even further by setting out proposals to crack down on directors and employers behaving irresponsibly.
These include:
- clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency
- disqualifying and or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail
- giving the Insolvency Service new powers to investigate directors of dissolved companies
- consideration of the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
- strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.
These reforms seek to respond in a balanced and proportionate way to help reinforce public trust and confidence in businesses and further strengthen the UK’s business environment which is a key part of the UK’s Industrial Strategy, the government’s long-term plan to build a Britain fit for the future. They will also help to ensure the UK remains one of the best places to start and grow a business and is an attractive place to invest.
The government will publish the Insolvency and Corporate Governance consultation later today setting out some of these proposals in more detail. It will also seek views on new ways to protect payments to smaller firms in a supply chain which can be hit hardest when large companies become insolvent.
The government is already taking action on this issue by:
- considering whether further action is needed to prevent the misuse of contract clauses, typically in the construction sector, allowing large firms to withhold payments as a surety against defects
- committing to launch a call for evidence on how to eliminate unfair payment practices to small businesses.
This package of reforms follows last year’s corporate governance reforms which sought to increase boardroom accountability.
