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Company collapses lead to insolvency law clampdown

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image captionThere have been several high-profile company insolvencies in 2018 so far

Company bosses who dissolve their firms to avoid paying off staff or meeting pension commitments will risk being hit with fines, under new government plans.

Ministers want tougher insolvency laws, after recent high-profile collapses devastated workers and pension schemes.

The Insolvency Service could also make companies prove they can afford to pay salaries and pension payments if they are also paying dividends to investors.

The TUC says the plan does not go far enough and is "tinkering at the edges".

The umbrella union wants the government to enforce a more radical overhaul of corporate governance in the UK, which would include honouring its commitment to have workers represented on company boards.

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Another part of the government's proposal will give company bosses more time to rescue struggling firms or attract new funding, in order to safeguard jobs.

'Deliberately dodging'

The Department for Business, Energy and Industrial Strategy (BEIS) said that reform was needed due to "a minority of directors who deliberately dodge debts by dissolving a company then starting up a near-identical business, with a new name".

Business minister Kelly Tolhurst said while the "vast majority" of UK companies were run responsibly, some "recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies".

She added: "This can't continue."

Analysis: Joe Miller, BBC business reporter

On the steps of Downing Street in 2016, a newly installed Theresa May pledged to "listen not to the mighty" but to ordinary workers, doubling down on her campaign promise to change the way big business in Britain was governed.

This agenda was seen by many to have been put on the back burner, as the Prime Minister and her government busied themselves with Brexit negotiations.

Yet collapses at Carillion and BHS brought the issue of so-called "irresponsible capitalism" back onto the front pages, and politicians lined up to pour scorn over the companies' former directors.

The firms' downfalls left tens of thousands of workers without jobs, and gaping pension deficits. Combined, they will cost the taxpayer upwards of £180m.

Today's proposals are an attempt by the government to rein in the most reckless directors, and stop a practice known as "phoenixing", in which an indebted business becomes insolvent, only to be re-launched under a different name.

The question is whether the powers handed to the Insolvency Service - to impose fines and disqualify directors accused of such behaviour - will be enough of a deterrent.

Corporate governance, Ms Tolhurst said, was being upgraded to give powers to authorities "to investigate and hold responsible directors who attempt to shy away from their responsibilities"

image copyrightPA
image captionSmall Business Minister Kelly Tolhurst said a minority of directors were acting "recklessly"

Recent high-profile insolvencies include high street stalwart BHS, which left thousands out of work and a pensions black hole amounting to hundreds of millions of pounds. Despite this, its directors continued to be highly paid as the company fell to pieces.

Stuart Frith, the head of insolvency and restructuring trade body R3, said his members "have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts".

He added: "A strengthened disqualification regime will be an important part of ensuring that directors are less likely to walk away from their responsibilities."

The Insolvency Service already disqualifies around 1,200 irresponsible directors a year, BEIS said.

Additionally, the Investment Association will be asked to investigate to see if more can be done to ensure companies give their shareholders an annual vote on dividends.

The government's proposals also want to make sure company directors spell out to investors how it can afford to pay out dividends alongside commitments to salaries, pension contributions and capital investment costs.

The measures will be set out in further detail in the autumn.

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