Limited liability laws must be overhauled

THE joint select committee inquiry into the fallout from the Carillion collapse is cochaired by MPs Frank Field and Rachel Reeves.

At an earlier hearing, Field reportedly asked the former directors of Carillion: “Is there any last thing you would like to say to those who have lost their jobs while you are all right?”

The significance of this question should be a headsup for all parliamentarians. It goes to the heart of limited liability legislation.

The Limited Liability Act 1855 allowed limited liability for corporations. Prior to this, they were treated like partnerships and shareholders were liable for the company’s debts.

Limited liability is akin to a free insurance policy for shareholders, in which all risks are transferred to other stakeholders and the public. Limited liability is a useful device, but is it right that there is no premium attached?

If shareholders had to pay a premium, there is a danger that some directors may feel this absolves them from irresponsible behaviour.

To counteract this, legislation could be introduced to make it a criminal act for directors to behave in a reckless, or deceitful, manner likely to endanger, or have been detrimental to, the livelihood of other stakeholders.

The penalties could range from lifelong debarment from directorship for minor infringements to imprisonment for the most serious offences.

GEOFF NAYLOR By email