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Government to protect staff & small suppliers in insolvent businesses

  • 29/03/2018
  • Jane Bray

The Government have announced that they are launching new plans to improve the UK's corporate governance framework, with the intention of ensuring that the UK remains one of the best places to start and grow a business. The plans will be looking at….

  • 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 began their consultation last week and are looking to ensure that the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency are being met.

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 be looking to 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.

Business Secretary Greg Clark said:

Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. This framework has been regularly upgraded and in the light of some recent corporate failures I believe the lessons should be learned and applied.

These reforms will give the regulatory authorities much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions.

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.

In the coming months the government will introduce new laws requiring:

  • listed companies to reveal the pay ratio between bosses and employees
  • all companies of a significant size to publicly explain how their directors take employees’ and other stakeholders’ interests into account
  • all companies of a significant size to make their corporate governance arrangements public

There is no guarantee that the companies you choose to do business with will avoid bad debt or insolvency however, thorough credit checking of companies and continual monitoring will help you to stay abreast of any changes in a company’s financial situation. To discuss credit reporting or monitoring, please call us on 01494 790600.