The British government are, they say, dedicated to making sure that the United Kingdom remains one of the best places on Earth to set up and grow a business. In order to do that they’re looking to - in their own words - ‘improve the UK's corporate governance framework’. What does that mean? Well, it’s a rather fancy way of saying they’re cracking down on insolvency misconduct and making insolvency protection a new priority.
The purpose behind the new powers is to give greater protection to company employees and creditors in the event of a company becoming insolvent. Directors who asset strip cynically in the lead-up to insolvency will be scrutinised more and could face tougher sanctions like fines and disqualification from future business ownership.
The government has faced criticism from certain quarters before about the ease with which cynical business owners can avoid debt and swerve their financial obligations when liquidating a company. This new framework of rules should hopefully put a stop to reckless business people shielding themselves from the fallout of insolvency, but exposing others who are not to blame.
The changes should see the following:
- The Insolvency Service being given more powers to be able to investigate directors suspected of foul play.
- Directors found guilty of reckless behaviour being held to account for debts personally.
- Further scrutiny as to how dividend payments are being handled in insolvencies.
- Addressing illicit asset stripping carried out near insolvency and returning any funds raised to those owing (unpaid employees, creditors, etc.).
- Ensuring shareholders take more responsibility in their stewardship of failing company where appropriate.
The UK's Business Secretary Greg Clark said this about the new framework being laid out:
"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."
That’s not to say that the government don’t currently have powers to investigate and punish wrongdoers. Every single corporate insolvency is looked over thoroughly and if it appears that the directors have acted illegally or have generally been unfit to run the company and people have suffered financially, fifteen year directorship disqualifications can apply.
And for anyone who thinks those threats are empty, The Insolvency Service disqualifies more than 1,200 irresponsible directors every single year, protecting creditors and others from an estimated value of some £140 million in losses...
The majority of companies are run with the best interests of the company, its employees and creditors in mind. These new rules are only designed to target those more unscrupulous directors going through the liquidation process.
If you’re experiencing financial trouble and are concerned that you may be indirectly affected by these new reforms or you have any other concerns, stop fretting...
