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Directors to face new scrutiny 15 July 2013

“Reckless” or “negligent” directors are to face the prospect of personal liability and disqualification from acting as company directors, under new proposals from business secretary Vince Cable.

The Department of Business, Innovation and Skills today (15 July) published a discussion paper, Transparency & Trust, which proposed such measures to crack down on “rogue” directors.

Under the proposals, company directors would become financially and personally liable for reckless behaviour, resulting in higher compensation for creditors, and ensuring directors face greater personal responsibilities in criminal proceedings.

Cable said: “We’re proposing tough measures to beef up the system for holding directors to account if they don’t play by the rules or take their responsibilities seriously.

“This will mean honest, hard-working directors are not disadvantaged and will give the public greater confidence that irresponsible directors will face consequences for their actions.”

Cable set forth a proposal to create a “public and open registry” of company directors to increase transparency, as well as improving how companies disclose information on subsidiaries.

Laws could be changed to prevent disqualified overseas directors from acting as directors of UK firms.

Courts could also be allowed to take account of a director’s actions on society, as well as previous failures, when considering disqualification.

The paper proposes that the current two-year ban for bringing disqualification proceedings in insolvency cases should be extended to five years. It also suggests courts should consider additional factors, such as the number of failed companies a director has previously been involved with.

Cable also announced he will launch an independent review of pre-pack administrations, with results expected by Spring 2014.

Liz Bingham, president of insolvency trade body R3, said: “We welcome the proposals on seeing more culpable directors disqualified. R3 has called for more resource in this area for some time to ensure that the number of disqualifications can keep pace with the number of reports that IPs submit on the conduct of a director in an insolvent business.

“We are also pleased to see that BIS is considering steps that could see directors that acted fraudulently or negligently personally compensate creditors. However, this might be seen as a case of the right hand of government not being aware of what the left is doing.

“IPs already play a key role in pursuing delinquent and fraudulent directors on behalf of creditors: this is under threat by the Ministry of Justice’s ‘Jackson’ proposals for legal aid reform.”

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