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Clampdown on directors who use insolvency process to avoid costs

Company directors who dissolve their businesses to avoid paying staff or meet pension commitments face potential fines and disqualification under government plans.

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Ministers are keen to tighten up insolvency rules following recent high-profile collapses, such as those of BHS and Carillion, which left thousands out of work and gaps in the company pension funds running into the hundreds of millions of pounds apiece.

 

The Insolvency Service already disqualifies around 1,200 irresponsible directors a year, the Department for Business, Energy & Industrial Strategy (BEIS) said.

 

Among the plans are requirements to ensure bosses explain to shareholders how their companies can afford to pay dividends alongside financial commitments such as capital investments, workers’ rewards and pension schemes.

 

Meanwhile, another part of the government’s proposal will give company bosses ‘breathing space’ to rescue struggling firms or attract new funding, in order to safeguard jobs.

 

BEIS said the additional powers were needed because there are a “minority of directors who deliberately dodge debts by dissolving companies then starting up a near identical business, with a new name”. The practice is known as ‘phoenixing’ or ‘bumping companies’.

 

Business minister Kelly Tolhurst said: “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.”

 

Stuart Frith, president of insolvency and restructuring trade body R3, said: “Our members have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts. A strengthened disqualification regime will be an important part of ensuring that directors are less likely to walk away from their responsibilities.”

 

Further details are expected to be outlined in the autumn.

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