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Crackdown on directors is step in right direction, says insolvency group

PUBLISHED: 12:37 29 August 2018 | UPDATED: 13:37 29 August 2018

R3 Eastern chairman Mark Upton, partner at Ensors Chartered Accountants. Picture: Roger Barcham, BMS Imaging

R3 Eastern chairman Mark Upton, partner at Ensors Chartered Accountants. Picture: Roger Barcham, BMS Imaging

Roger Barcham, BMS Imaging

A regional insolvency group has welcomed government moves to crack down on directors who dissolve their businesses to avoid paying workers or pensions.

The new measures would mean the Insolvency Service could be given powers to fine or disqualify directors who deliberately shut down their company to avoid their payroll or pensions liabilities.

Ministers say the proposals will better protect workers, pensions and small suppliers when a company becomes insolvent, and are part of a wider reform of the corporate insolvency framework.

The changes come in the wake of the high-profile collapses of major names such as Carillion and BHS.

Under the shake-up, the Insolvency Service would have the power to fine or disqualify bosses who deliberately dodge debts by dissolving their company and setting up a near-identical one under a new name - a process known as phoenixing.

Mark Upton, chair of the Eastern branch of restructuring trade body R3, said the issue had long been a concern among his members.

“The government’s announcement that it will look to punish such behaviour is an important part of ensuring that directors are less likely to walk away from their responsibilities,” said Mr Upton, urging government to work with the insolvency profession to hold directors to account.

Other measures in the plans include giving struggling companies more time to restructure or attract new funding to rescue the business, in order to help safeguard jobs. Shareholders would also be given more powers to hold boardrooms to account, with executives told to explain to them how they can afford to pay dividends.

Mr Upton added that the government and insolvency profession’s existing powers could be used more fully.

“In the past few years, the annual number of directors who are disqualified nationally has hovered around 1,200. At the same time, R3’s members have reported frustration at making an increasing number of reports to the Insolvency Service of misbehaviour on the part of directors which are then not followed up,” he said.

He also urged “greater coordination” between different parts of government to identify “patterns of misconduct in a more timely fashion”.

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