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Government to crack down on reckless directors

Business secretary Greg Clark has announced new plans to ban irresponsible directors.

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The Department for Business, Energy and Industrial Energy was formed in 2016 by Theresa May following her appointment as PM

It is a topic frequently covered on Print Monthly – the demise of a print company made worse for its employees by directors not paying staff. Across all industries, some directors dissolve companies to avoid paying workers or their pensions.

The Department for Business, Energy and Industrial Strategy have outlined new plans to punish directors who close companies to avoid debt and start up a near-identical business with a new name. This is known as ‘phoenixing’ or ‘bumping companies’ and whilst it is a minority of directors who do this, more powers will be given to the Insolvency Service to fine them, or even have them disqualified. This is the first time directors in the UK could face this punishment.

The new plans will safeguard both employees and creditors and allow more time for a business to be saved before it is dissolved. The new measures will give financially-viable companies more time to rescue their business, by enabling those companies to restructure or seek new investment, whilst continuing to trade through the restructuring process. A new restructuring plan could be introduced to help rescue businesses and preserve jobs.

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

Business minister Kelly Tolhurst says: “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.”

The government also want to implement new measures to improve the quality of directors, by introducing new and better training to make directors aware of their legal duties. It has also been put forward that the Institute of Chartered Secretaries and Administrators (ICSA) could play a role in convening a group of investors and companies to develop a code of practice for external board evaluations.

Concerns from employees have been raised to this publication on more than one occasion about the practices of some directors in the print industry. Earlier this year, Print Monthly reported that one part of the ‘Bonnie and Clyde’ of the print industry, Neill Malcolm Stuart John, had reopened another online printing service following the closure of other businesses he was responsible for, when he faced accusations of defrauding his clients - a charge he denied.

Cornish business Four Way Print recently entered administration, after doubts were highlighted about director John Freeman’s previous directorships both in the UK and New Zealand. The New Zealand Companies Register showed that Freeman had been disqualified from being a director in the country but has continued to buy businesses in the UK.

More details about the measures will be set out in the autumn as part of the government’s response to the corporate governance and insolvency consultation that was launched in March this year. The Labour Party has called for faster and harsher action for reckless directors.

Do you welcome these potential new measures from the Government? Let me know at summer@linkpublishing.co.uk or reach out on Twitter and have your say.

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