Reckless directors to pay for business failures

Insolvency reforms will make irresponsible directors bear the consequences of their actions, says North London Society of Chartered Accountants chair Paul Weber.

May 2018

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.

Following last year’s corporate governance reforms to increase boardroom accountability and transparency of big business, the government wants 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; and
• strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.

The government is aiming to improve the UK’s corporate governance framework to ensure the UK remains one of the best places to start and grow a business.

However, as the government says, although the vast majority of UK companies are run fairly and responsibly, 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.

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.

Paul Weber ACA FCCA FABRP from Leigh Adams Ltd is an ICAEW Chartered Accountant and licenced insolvency practitioner, and the chair of the North London Society of Chartered Accountants

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