Government Opens Consultation on Overhaul of Corporate Insolvency Regulations

The government has announced the launch of a consultation on a wide range of issues relating to corporate governance frameworks and the responsibilities place upon directors in corporate insolvency scenarios.

The government says it is specifically seeking to “ensure the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency”.

Statements issued along with the announcement of the consultation’s launch make clear that the government is concerned about the prevalence of failings among company directors in these contexts.

The authorities fear that company directors have too often been able to shield themselves from the potential impacts of corporate insolvencies and even profit from business failures while their employees and suppliers lose out.

With this in mind, the government is aiming to initiate a “crack down on directors and employers behaving badly” and has outlined a series of proposals that it hopes might help better protect creditors, as well as employees and suppliers in insolvency situations.

The list of proposals includes ideas on how to claw back more money for creditors when companies have been asset stripped while on the verge of insolvency.

Also, the Insolvency Service could soon be given new powers to investigate directors of dissolved companies and the role of shareholders could be strengthened in order to restrain director behaviour in certain situations.

Responses on these and other proposals are now being sought, with the government aiming to “reinforce public trust and confidence in businesses and further strengthen the UK’s business environment”.

“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,” said business secretary Greg Clark.

“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.”

New laws already on their way into effect in the UK will soon require companies “of a significant size” to publicly outline their corporate governance structures and explain precisely how they take their employees’ and their stakeholders’ interests into account. 

According to the government’s own figures, the Insolvency Service disqualifies close to 1,200 irresponsible company directors every year.