UK Government announces insolvency and corporate governance reforms

The Department for Business, Energy and Industrial Strategy (BEIS) said that reform was needed due to “a minority of directors who deliberately dodge debts by dissolving a company then starting up a near-identical business, with a new name”.

The new rescue measures aim to strengthen the insolvency regime and follow a consultation in 2016 and a further consultation on strengthening corporate governance launched in March 2018.

The measures have been announced alongside new reforms to tackle reckless directors and improve corporate governance to protect creditors, employees and other stakeholders in companies approaching insolvency which were the subject of consultation earlier this year.

The insolvency proposals have similarities to aspects of the US’s Chapter 11 Bankruptcy Code and other international regimes and balance support for a company in distress with the interests of its creditors. They include a period of ‘breathing space’ – a moratorium – allowing viable companies more time to restructure or seek new investment to rescue their business free from creditor action. A new restructuring plan procedure will provide an alternative option for financially-distressed companies to restructure their debts.

Following concerns about some recent high-profile corporate failures, new measures are also being introduced to help ensure that creditors, employees and other stakeholders are treated fairly by the directors of ailing companies.

These include new powers for the Insolvency Service to investigate directors of dissolved companies, enhancements to existing antecedent recovery powers and the ability to disqualify directors of holding companies who unreasonably sell insolvent subsidiaries.

Business minister Kelly Tolhurst said while the “vast majority” of UK companies were run responsibly, some “recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies”.

She added: “This can’t continue.”

The full Government response is available here.