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Industry welcomes director accountability proposals

The Department for Business, Energy and Industrial Strategy (BEIS) has announced new proposals to crackdown on directors of dissolved companies who seek to avoid their pension or payroll liabilities.

The measures, announced last week by business secretary Greg Clark, include plans to grant the Insolvency Service new powers to fine or disqualify directors found guilty of dodging debts to staff or creditors. They come after the prosecution of former BHS owner Dominic Chappell, who has been ordered to pay £9.5m into the retailer’s pension fund by the Pension Regulator following its collapse. Chappell has said he will appeal.

Other BEIS proposals include developing training for directors to make them aware of their legal duties, and for boards to explain to shareholders how they can afford to pay dividends alongside capital investment, workers’ rewards and pension schemes.

Roger Barker, head of corporate governance at the Institute of Directors (IoD), believes the government had reached some good conclusions: “Overall, [the IoD] welcomed the outcome of this and thought it was a reasonable set of conclusions to make.”

The BEIS also proposes ending the loophole, known as “phoenixing”, whereby a director can dissolve a company and start an almost identical one under a new name.

Barker said this was uncontroversial: “It’s reasonable that you should be held accountable, even if your company has dissolved.”

As to whether the measures go far enough, and whether the BEIS or the Insolvency Service has the power to make a difference, Barker said there is still more detail to come in the autumn. The IoD would like to see more accountability for directors, but delivered via a professional body, rather than legislation.

A professional organisation is something retail expert Nick Bubb also agrees might be more effective: “Peer group opinion can often be a stronger force than the letter of the law. I think it’s already very difficult for executive directors to come back if they’ve been involved in administrations.”

It is a complicated area, added retail specialist Richard Hyman, but something needs to be done: “The image and reputation of the retail industry has been damaged in recent years by various collapses that have been detrimental to the welfare of the staff … [and] this is just the beginning.”

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