The UK Government is consulting on a set of reforms that will give greater protection to staff and small suppliers of insolvent businesses under new plans to crack down on directors and employers behaving irresponsibly.
The consultation was launched this week 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.
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The move follows a similar one made by the government last year to increase boardroom accountability and transparency of big business. The new proposals aim to raise these standards further and will include a claw-back of money for creditors, including workers and small suppliers, by reversing inappropriate asset stripping of companies on the verge of insolvency, and disqualifying and/or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail.
The government also plans to give the Insolvency Service new powers to investigate directors of dissolved companies, and will consider the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent. Finally, it aims to strengthen the role and responsibilities of shareholders in stewarding the companies in which they have investments.
The reforms, the government says, seek to respond in a “balanced and proportionate” way to help reinforce public trust and confidence in businesses and further strengthen the UK’s business environment.
“Britain has a good reputation internationally for being a dependable place to do business, based on required high standards,” says Business Secretary Greg Clark. “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.”
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By GlobalDataThe government will now seek views on new ways to protect payments to smaller firms in a supply chain that can be hit hardest when large companies become insolvent.
Last month House of Fraser had its credit insurance withdrawn to some of its suppliers because of the structure and state of the company. The retailer has been undertaking a GBP25m (US$35.1m) re-platforming of its e-commerce business, which has taken its toll on profits.
This loss of cover was seen as a contributing factor in the demise of BHS and Woolworths. Also this year, UK fashion retailer New Look had credit insurance withdrawn for many of its suppliers.
House of Fraser supplier credit cover withdrawn
