Corporate governance reforms announced today

Published on 26 August 2018

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The government has today announced that corporate governance reforms are on their way. In fact, these reforms have been announced by a Kent MP, Kelly Tolhurst, who was recently appointed as a parliamentary undersecretary with responsibility for small business affairs and insolvency.

These reforms are announced in the wake of concerns following high profile failures such as BHS, Monarch and Carillion.

There are 4 key reforms expected:

  1. For companies in distress, a short protective bubble is being created to help them implement a rescue plan without pressure from creditors. If the rules are practical and workable, this could become a major tool in the armoury of restructuring experts.
  2. A new restructuring procedure is to be introduced which is designed to provide innovative options for restructuring businesses.
  3. Dissolved companies – it is becoming easier in recent years to get companies dissolved and this has been encouraged by the government to make doing business in the UK easier. However, abuses can happen where a company is struck off without paying taxes or other liabilities and the government is introducing some balance by making it possible to disqualify directors who abuse the process from being company directors in the future.
  4. Finally, but importantly, the government seems to be announcing a review of our dividend laws. Dividends can currently be paid out of “distributable reserves” but the government wants to establish if this test is still fit for purpose. This review comes on the back of dividends being paid to shareholders out of companies which fall into insolvency shortly afterwards. The review may centre around how far ahead directors need to look for liabilities which are not yet payable before paying money to the shareholders.

Our Head of Restructuring and Transformation, Andrew Tate (@Andrew Tate on Twitter), appeared on Radio 5 Live this morning talking about the reforms. Andrew appeared representing R3, the trade body for insolvency and restructuring professionals which he was president of in 2016.

Controversial business failures are not good for UK business so, particularly in the light of the prospect of a no deal Brexit, we await the new proposals with interest and hope they support a continued vibrant business environment for our clients.

The announcement is here: https://www.gov.uk/government/news/new-crackdown-on-reckless-directors

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