The government has announced plans to crack down on directors who dissolve companies to avoid paying workers or pensions, before starting up phoenix firms.
Directors who flout the rules will face hefty fines or be disqualified from running a business for the first time under the plans, announced on Sunday.
The government said that while the majority of UK companies were run responsibly, there was a minority of directors who dodge debts by dissolving companies and then starting up a near identical business with a new name in a practice known as “phoenixing” or “bumping companies”.
There are also plans to ensure that bosses explain to shareholders how the company can afford to pay dividends alongside financial commitments such as capital investments, workers’ rewards and pension schemes.
At the same time, the government is introducing new measures in response to its corporate insolvency consultation that will give financially viable companies more time to rescue their business.
The measures will be set out in more detail in the autumn and are being put forward as part of the government’s response to the corporate governance and insolvency consultation, launched in March this year.
Business minister Kelly Tolhurst said: “While the vast majority of UK companies are run responsibly, some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies. This can’t continue.
“That is why we are upgrading our corporate governance to give new powers to authorities to investigate and hold responsible directors who attempt to shy away from their responsibilities, help protect workers and small suppliers and ensure the UK remains a great place to work, invest and do business.”
