Government unveils insolvency framework changes
The government has revealed plans to alter the UK’s corporate governance framework in order to tackle company management behaviour at firms facing insolvency.
It comes amid concerns that company directors are using the current set up to shield themselves from the effects of insolvency and to even profit from business failure while others lose out.
Changes in 2017 saw greater transparency introduced to the system alongside more boardroom accountability.
The new proposals will build on those changes to ensure that irresponsible behaviour by those in charge of businesses can be tackled effectively.
One of the measures will make it possible to obtain money for creditors by reversing instances where assets have been stripped from companies that are verging on insolvency.
This will potentially benefit both workers and those in the supply chains of the businesses concerned, as the process for accessing that finance should be more straightforward.
Further changes will enable directors to be held personally liable, or even disqualified from doing business, if they are found to have sold a firm in difficulty in a reckless fashion or when knowing it would fail.
The government has insisted that the moves want to build trust and confidence in the UK business market, which is a key pillar of the UK’s Industrial Strategy.
Business Secretary Greg Clark said that the UK has a strong reputation for being a dependable location for doing business and that the latest changes look to learn from the lessons of recent notable corporate failures in the retail and construction sectors.
“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,” he said.
Having published the Insolvency and Corporate Governance consultation, the government is also set to seek views on how supply chains can be protected when larger firms are declared insolvent.
This was a particular issue in the high‐profile case of Carillion, as a knock‐on effect from the insolvency was felt along the supply chain.
Any firms facing difficulty are encouraged to seek advice from corporate insolvency practitioners as to what options may be available.
By Phil Smith