More safeguards for SMEs when customers become insolvent

The government has outlined plans to provide more protection for small and medium-sized businesses who supply companies that become insolvent.

It also wants to prevent directors from unfairly shielding themselves from the effects of insolvency.

Ministers say that in the worst cases, directors can even profit from business failures while workers and small suppliers lose out.

The government is considering a number of proposals including:

• clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency
• disqualifying and or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail
• giving the Insolvency Service new powers to investigate directors of dissolved companies
• considering the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
• strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.

Business Secretary Greg Clark said: “Britain has a good reputation internationally for being a dependable place to do business, based on required high standards. This framework has been regularly upgraded and in the light of some recent corporate failures I believe the lessons should be learned and applied.

“These reforms will give the regulatory authorities much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions.”

The Insolvency and Corporate Governance proposals are now subject to a public consultation.

The government is also seeking views on new ways to protect payments to smaller firms in a supply chain which can be hit hardest when large companies become insolvent.

We shall keep clients informed of developments.

Please contact Neil O’Callaghan for more information about the issues raised in this article or any aspect of company law and insolvency.