‘Phoenix­ing’ bosses face curbs

The Sunday Telegraph - Money & Business - - Business - By Oliver Gill

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.”

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