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Greater protection for staff and small suppliers in insolvent businesses

Last week the Government announced plans to improve the UK’s corporate governance framework by launching a consulation to improve the UK’s corporate governance framework and ensure the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency.

These reforms seek to help reinforce public trust and confidence in businesses and further strengthen the UK’s business environment.

The crackdown on directors and employers behaving irresponsibly includes:

  • clawing back money for creditors, including workers and small suppliers, by reversing inappropriate asset stripping of companies on the verge of insolvency
  • disqualifying /or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly, or knowing it would fail
  • giving the Insolvency Service new powers to investigate directors of dissolved companies
  • consideration of the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
  • strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments

The Insolvency Service disqualifies around 1,200 directors deemed as irresponsible every year, protecting creditors from an estimated total £137 million in losses.

In the coming months the government will introduce new laws requiring:

  • listed companies to reveal the pay ratio between bosses and employees
  • all companies of a significant size to publicly explain how their directors take employees’ and other stakeholders’ interests into account
  • all companies of a significant size to make their corporate governance arrangements public

Source:  GOV.UK

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