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New rules unveiled

Directors face tougher penalties for reckless behaviour

Carillion sign

Carillion’s collapse focused attention on directors’ behaviour (pic: Terry Murden)


 

Company directors face a greater likelihood of disqualification or fines under tough new rules to tackle reckless boardroom behaviour.

The UK Government is strengthening the corporate governance regime following some high-profile collapses, including construction and facilities management firm Carillion in January, which brought chaos to public-private contracts across the country and impacted on thousands of jobs.

Under the new rules, directors could be disqualified from managing companies for up to 15 years if their conduct during a corporate insolvency is found to be “unfit.”

More powers will be handed to insolvency practitioners that will give more “breathing space” to failed companies and improve the level of protection for creditors, employees and other stakeholders.

The insolvency proposals are similar to the US’s Chapter 11 Bankruptcy Code and other international regimes by providing a moratorium allowing viable companies more time to restructure or seek new investment to rescue their business free from creditor action.

A  new restructuring plan procedure will provide an alternative option for financially-distressed companies to restructure their debts.

Following concerns about some recent high-profile corporate failures there will be new powers for the Insolvency Service to investigate directors of dissolved companies, enhancements to existing recovery powers and the ability to disqualify directors of holding companies who unreasonably sell insolvent subsidiaries.

Further insolvency-related measures aim to help unsecured creditors through applying an inflationary increase to the cap on the ring-fenced pot of money available to unsecured creditors, called the prescribed part that has remained unchanged since its introduction in 2003.

The Government will introduce measures to improve corporate governance in order to tackle reckless directors and better protect pensions, small suppliers and workers who lose out when companies go bust.

Standards will be raised by:

  • requiring that bosses explain to shareholders how the company can afford to pay dividends and financial commitments such as investments and pension schemes
  • asking the Investment Association to investigate if action is needed to ensure that companies are giving their shareholders an annual vote on dividends
  • greater access to training for directors and minimum standards for independent board review


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