Written by: Keith Tully
Published: 26th August 2018
The government has announced its plans to clamp down on the activities of “reckless” company directors who dissolve businesses in order to avoid paying debts to their own staff and to their creditors.
New powers will be given to the Insolvency Service to fine and disqualify company directors who are deemed to have behaved improperly in the context of winding down a business.
The government’s hopes are that bolstering the powers of the Insolvency Service will help it to deter directors from leaving their employees and their creditors out of pocket after a company dissolution.
Dissolving a company in order to avoid paying pension liabilities will also be punishable by fines and disqualifications, the Department for Business, Energy & Industrial Strategy has announced.
A practice the authorities are particularly keen to deter is what’s known as ‘phoenixing’ or ‘bumping companies’, whereby directors dissolve a business only to set up a very similar one a short time later but with the former company’s debts having been shed along the way.
Business minister Kelly Tolhurst cited “some recent large-scale business failures” as demonstrating just how damaging company collapses can be and how serious the issues are when individual directors are not legally prevented from “recklessly profiting from dissolved companies”.
“This can’t continue,” Ms Tolhurst has said. “That is why we are upgrading our corporate governance to give new powers to authorities to investigate and hold responsible directors who attempt to shy away from their responsibilities.”
A series of new measures are being introduced by the government with the aim of improving standards of behaviour and outcomes in the context of company insolvencies across the country.
As a consequence, financially viable companies in difficulty will be given more time to resolve the issues they’re facing and to potentially formulate a rescue plan in the interest of those businesses but also the members of their workforce.
“Our members have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts,” said Stuart Frith, president of insolvency and restructuring trade body R3.
“A strengthened disqualification regime will be an important part of ensuring that directors are less likely to walk away from their responsibilities.”