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Consultation findings on improvements to Insolvency and Corporate Governance

Published on:October 3, 2018Author:darcey

Consultation findings on improvements to Insolvency and Corporate Governance

The government opened a consultation on Insolvency and Corporate Governance which ran from 20 March 2018 and closed on 11 June 2018.  Details of the responses received and the outcome of the consultation can be viewed at:-

https://www.gov.uk/government/consultations/insolvency-and-corporate-governance

The aim of the consultation was to seek views on ways to reduce the risk of company failures which occur through poor control or management, and to improve the existing insolvency regime.  For ease of reference I have summarised the key points below.

Corporate Governance

In the light of views received, the Government now proposes the following actions (subject to further consultation where necessary) to:-

  • Strengthen transparency requirements around group structures;
  • Strengthen the position of company shareholders;
  • Strengthen the existing framework relating to dividend payments;
  • Strengthen boardroom effectiveness and strengthen directors’ training and guidance.

Insolvency

In light of views received, the Government also proposes changes to the insolvency framework in cases of major corporate failure by:-

  • Taking measures to ensure greater accountability of directors in group companies when selling subsidiaries in distress;
  • Legislating to enhance existing recovery powers of insolvency practitioners in relation to value extraction schemes;
  • Legislating to give the Insolvency Service powers to investigate directors of dissolved companies (when they are suspected of having acted in breach of their legal obligations).

Creditor Protection

There are also proposed reforms which will increase protection for creditors and ensure a fair balance between company rescue and the payment of company debts, including:-

  • Measures to prevent a supplier from enforcing termination clauses in contracts for supply of goods/services on the grounds that a party has entered a formal insolvency procedure;
  • The introduction of a new moratorium to help business rescue which will give financially distressed companies which are ultimately viable a set period of time;
  • The introduction of a new restructuring vehicle that would include the ability to bind dissenting classes of creditors who vote against it.

It will be increasingly vital that directors of insolvent companies take proper advice. If the company has no future and needs to be wound up, an Insolvency Practitioner should be instructed to help place the company into liquidation. Pulling the assets out of the company and letting the company go down the striking off route is at the very least misfeasance (S212 IA 1986 – becoming accountable for company assets or a breach of any fiduciary duty).

Liquidation made simpler

We have previously issued blogs about changes to Insolvency Rules which have to a degree simplified the process to wind up a company.

If you have clients with companies that are insolvent and need action, please do speak to our Business Advisor team on 0333 9999 689 or visit our website for helpful information https://www.thebusinessdebtadvisor.co.uk/.