Company Failures Prompt Overhaul of Insolvency Rules

20th March 2018.

In the wake of the collapse of Carillion and BHS, the government has unveiled plans to introduce an overhaul of Britain’s insolvency framework.

The government has promised to get tough on company directors and bring criminal proceedings against the most “reckless” employers and directors of businesses. This is to stop individuals in power abusing their position to profit from failures, and harming smaller firms in the process. Carillion is a case in point. The failed construction company’s directors are currently under investigation for their role in its demise, with both men accused of making their accounts look better than they were and “dumping” their shares at the earliest moment. These new rules will give authorities new powers to crack down on inappropriate behaviour, and directors will be held personally liable for any misgivings.

When you are a business owner you put a target on your back. Employees will go to you with their issues, shareholders too, and if there is a problem you will answer for it. It is therefore essential that directors ensure their slate is clean, as well as their customers and suppliers. At the Credit Protection Association, aside from our debt recovery services we also offer our members a range of credit management products, from credit reports and monitoring facilities to a very thorough company directory. It is with these tools that our members can credit check their customers, measuring their credit score and the director’s financial history. This gives our members the edge, allowing them to bail out early if these directors could indeed pose damage to their business.

These new laws will give authorities new powers to crack down on inappropriate asset stripping, dissolving companies to dodge debts and directors selling companies recklessly under changes to the UK’s corporate governance framework.

Directors will be held personally liable if they sold a business they knew would fail and the Insolvency Service will be given new powers to investigate directors.

This overhaul was, in part, inspired by the collapse of Carillion, which left thousands of smaller sub-contractors out of pocket and facing an uphill struggle to recoup losses. The company continued to take on huge new contracts throughout the second half of 2017 despite facing crippling contract write-downs.

The changes come as the government yesterday issued a White Paper that could see bosses held criminally liable for mismanaging pension schemes.

“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,” said business secretary Greg Clark.

When you own a business you own everything that happens within its walls; good and bad. You are not exempt from scrutiny and you must be prepared to show your paperwork if anything goes wrong. It would be worth conducting a spring clean of your finances to ensure everything is in order and clearing out any bad debt or late payers to prevent following in Carillion’s footsteps.

Whether you are a director of a large corporation or a small construction company, you are bound by the same regulations. You must ensure you treat your customers ethically and efficiently or risk the wrath of this new government initiative, and make sure to monitor your own customers so you can halt business if you spy a rogue within the ranks.