Staff and small suppliers in insolvent businesses will be given new powers under sweeping reforms designed to benefit the parties most affected by financial collapse.
The Department for Education, Energy and Industrial Strategy (BEIS) said directors selling companies recklessly will face tough new sanctions which include fines and disqualification.
It has launched a consultation to review these changes, which it hopes will improve the UK’s corporate governance framework and “ensure the highest standards of behaviour” in those who lead and control companies in, or approaching, insolvency.
Business Secretary Greg Clark said: “Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. This framework has been regularly upgraded and in the light of some recent corporate failures I believe the lessons should be learned and applied.
“These reforms will give the regulatory authorities much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions.”
Under the reforms, the Government plans to introduce several measures designed to crack down on directors and employers “behaving irresponsibility”. These include:
- clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency
- disqualifying and or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail
- giving the Insolvency Service new powers to investigate directors of dissolved companies
- consideration of the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
- strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.
The changes follow the announcement of an FRC investigation into the former directors of the now-defunct construction firm, Carillion.
It was discovered that in December 2016, former finance director Richard Adam had allegedly “dumped” stock at the first possible moment after his retirement.
If found guilty of any wrongdoing, the FRC has powers to impose unlimited fines or ban members of professional accounting bodies.