RiskXtraSeptember2018

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RISKXtra
Editorial
Good for Business
For the first time, directors who dissolve companies in order
to avoid paying workers or pensions could now face hefty
fines or be disqualified from running a business. In a bold
and necessary move, the Government is to press ahead with new
plans to safeguard workers, pensions and smaller suppliers
when a company goes bust. Under the shake-up, bosses will face
thorough investigation if they try to escape paying a dissolved
company’s debts to their own staff and creditors.
While the majority of UK companies are run very responsibly,
there are a minority of directors who deliberately seek to dodge
debts by dissolving operations then starting up a near identical
business with a new name. This practice is known as
‘phoenixing’ or ‘bumping companies’. Under the new powers
invoked at Westminster, though, the Insolvency Service will be
able to fine directors who engage in such tactics or even have
them disqualified.
Business minister Kelly Tolhurst said: “The UK is a great place
to do business with some of the highest standards of corporate
governance. Some recent large-scale business failures, though,
have shown that a minority of directors are recklessly profiting
from dissolved companies. This simply cannot continue. That’s
why we’re upgrading corporate governance to give new powers
to relevant authorities to investigate and hold responsible those
directors who attempt to shy away from their responsibilities. We
want to assist in protecting workers and smaller suppliers.”
In parallel, the Investment Association will be asked to
investigate to see if action is needed to ensure that companies
are giving their shareholders an annual vote on dividends.
The Government is further raising standards by ensuring that
bosses explain to shareholders how a given company can afford
to pay dividends alongside financial commitments such as
capital investments, workers’ rewards and pension schemes.
Additionally, the Government is introducing new measures in
response to its corporate insolvency consultation that will give
financially-viable companies more time to rescue their business.
These include giving viable companies more time to restructure
or seek new investment to rescue their business (in turn helping
to safeguard jobs). This enables companies in financial distress
to continue trading through the restructuring process, thus
ensuring that smaller suppliers as well as workers are still paid.
New restructuring plans are afoot to assist in the rescue of viable
businesses and to preserve jobs.
The Government is also announcing new measures designed
to improve the quality of directors’ work by developing proposals
to introduce new and better training for them such that they’re
more aware of their legal duties, while at the same time inviting
ICSA: The Governance Institute to convene a group of investors
and companies in order to develop a dedicated Code of Practice
for external Board evaluations.
These reforms will help to strengthen the UK’s business
environment. An emboldened disqualification regime in
particular is going to be a vital element in ensuring that directors
are less likely to simply walk away from their responsibilities.
Brian Sims BA (Hons) Hon FSyI
Editor
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