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Government plans insolvency law clampdown following spate of company collapses

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With 2018 seeing a number of high profile corporate failures including Carillion and BHS, the issue of so-called "irresponsible capitalism” is back in the limelight with ministers once again denouncing the companies’ former directors as thousands of workers lose their jobs and are faced with gaping pensions deficits.

The Government is considering introducing tougher penalties including disqualifying and fining directors who dissolve their businesses in order to avoid paying redundancies and meeting their pension obligations.

Under these new plans, companies which are paying dividends to investors may be required to prove to the Insolvency Service that they have the funds to pay salaries and make pension payments.

However, the TUC has described the plan as "tinkering at the edges" and says that it does not go far enough.  The umbrella union would prefer to see the government implement a more radical strategy, including having workers represented on company boards.

The government also proposes to give company directors additional time to rescue the business and, hopefully, save jobs.

According to business minister Kelly Tolhurst, while the "vast majority" of UK companies were run responsibly, she said that some "recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies" and concluded "this can't continue."

Ms Tolhurst went on to say that corporate governance was being strengthened to enable authorities "to investigate and hold responsible directors who attempt to shy away from their responsibilities."

The plan was welcomed by insolvency and restructuring trade body, R3, which commented that its members "have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts".  He continued: "A strengthened disqualification regime will be an important part of ensuring that directors are less likely to walk away from their responsibilities."

These measures represent the most significant update to the corporate insolvency regime since the 2002 Enterprise Act. Having a robust framework in place will, of course, benefit the economy and ensure that our regime continues to be viewed as one of the most responsive and fit for purpose in the world – we look forward to seeing the full detail of the plans when they are released in the autumn.

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