London, 12 June 2018 – ICSA: The Governance Institute has identified a number of proposals in the Government’s consultation on proposed changes to the statutory framework around insolvency that would result in more companies being liquidated, to the possible detriment of all stakeholders.
According to Peter Swabey, Policy and Research Director at ICSA:
“Our overriding observation is that the current legal and regulatory regime is, for the most part, fit for purpose. We have, however, identified a number of proposals that could put more companies at risk of liquidation, with fewer distressed businesses being rescued.
“The proposal that the directors of a parent company remain liable for its former subsidiary if the subsidiary enters administration or liquidation within a two-year period after sale, would probably result in the business being closed and the subsidiary liquidated as the risk to the directors of the parent company would be too great. Likewise, the proposal that corporate rescue arrangements may be unwound if they are judged, with hindsight, to have been “unfair” or “excessive”, and seen as value extraction schemes, will create too much risk and uncertainty for the potential investor. It is likely to preclude the possibility of failing companies being acquired and returned to profit, as the costs and effort required would be outweighed by the risks.
“However, we agree that action should be taken to prevent directors avoiding their liabilities in circumstances where they apply to have a limited liability company struck off, frequently using a ‘pre pack administration’ process and then simply start up the same business again.”
The professional body for governance has recommended that current regulations be more robustly enforced rather than additional insolvency legislation be introduced.
“Our overriding observation is that the current legal and regulatory regime is, for the most part, fit for purpose. Recent high-profile corporate failures are more likely to have been due to the actions or inactions of individual directors rather than to weaknesses in the legal and regulatory environment. The responsibilities of directors to all stakeholders are clearly set out in current legislation. The focus should be on robust enforcement of current regulations rather than additional legislation. However, if the Insolvency Service has identified some areas where it feels it needs additional powers, ICSA would support minor amendments to legislation or regulation.”
ICSA’s full response can be viewed at: www.icsa.org.uk/assets/files/pdfs/guidance/consultations-2018/ICSA-Response-to-BEIS-insolvency-FINAL.pdf
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