Directors who deliberately dissolve companies to avoid paying wages or pensions could be banned under new provisions announced by the government.
Business Secretary Greg Clark has outlined new powers to ban ‘reckless’ directors and impose more severe penalties if they are found to have acted inappropriately.
The plans aim to safeguard workers, pensions and small suppliers where a company goes bust. Under the provisions, company bosses will face an investigation if they try to escape paying a dissolved company’s debts to staff and creditors.
The powers are designed to tackle the practice known as ‘phoenixing’ or ‘bumping companies’ – whereby directors dodge debts by dissolving companies then starting up a near identical business, with a new name.
The Insolvency Service will be responsible for enforcing these new powers and will be able to fine directors or even disqualify them.
Business Minister Kelly Tolhurst, said: “The UK is a great place to do business with some of the highest standards of corporate governance. While the vast majority of UK companies are run responsibly, some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies. This can’t continue.
“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, help protect workers and small suppliers and ensure the UK remains a great place to work, invest and do business.”
Among the other powers announced by the government were plans to give struggling companies more time to rescue their business and help safeguard jobs. Those in boardroom positions will also need to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes.
Read the full response to the ‘Insolvency and corporate governance’ consultation.