‘Phoenixing’ bosses face curbs
RECKLESS directors who allow companies to go bust to avoid debts could be disqualified and fined under new powers handed to the Government’s Insolvency Service.
Ministers want to curb so-called “phoenixing”. This is where liabilities such as pension deficits and supplier payments are left behind by companies, only for businesses to then reemerge under a different name with a clean bill of health.
The Insolvency Service (IS), which has been flung into the limelight from the catastrophic collapse of Carillion earlier this year, will be able to take enforcement action against directors of dissolved companies for the first time. Previously, the IS has only been able to hold directors to account while their companies are in an insolvency process such as administration of liquidation.
The new powers, to be outlined in further detail this autumn, will focus on directors who sell a subsidiary only for that company to collapse into insolvency within one year.
The proposals come as widespread criticism persists over the actions of Sir Philip Green, the retail tycoon, who sold department store BHS for £1 in 2015, only for it to fail a year later. Sir Philip escaped an IS ban from serving as a company director earlier this year.
Kelly Tolhurst, the business minister, said the Government wants to “hold responsible directors who attempt to shy away from their responsibilities, help protect workers and small suppliers”. Meanwhile, ministers have drafted in the Investment Association (IA), the leading trade body for investment managers, to help monitor dividend payouts.
With IA intervention, it is hoped directors will be prevented from handing out cash to shareholders instead of funding liabilities. Stuart Frith, the president of R3, the insolvency and restructuring body, said: “Our members have long raised concerns that some directors are deliberately dissolving businesses to avoid paying their debts.
Chris Cummings, the IA chief executive, said: “There is a concern among investors that some companies are utilising interim dividend payments in order to avoid shareholder approval.”