Due to numerous high-profile business collapses recently, which have impacted both workers and pension schemes, the UK government plans to introduce stricter insolvency laws to protect UK employees and their finances.
It is believed the new laws will result in companies being hit with fines if they fail to pay off their employees or adhere to their pension commitments. You can learn more about the significant changes to legislation following high profile insolvencies below.
The Insolvency Service will soon make companies provide evidence that they can afford to pay both their employees’ salaries and pension payments, even if they are paying dividends to their investors. The TUC, however, wants the government to go one step further, as they believe workers should be represented on company boards.
More Assistance for Struggling Firms
The government’s proposal might also provide business owners with additional time to potentially save their struggle firm or to secure funding. This will make it possible for an ailing company to not only get back on its feet, but it will also help to safeguard the many jobs a firm is responsible for. If you are struggling with your company’s finances, it is critical to receive professional insolvency advice as soon as possible.
Deliberate Debt Dodging
While the majority of UK companies are responsibly run, there are sadly a small number of directors who will happily take advantage of insolvency to deliberately dodge their growing debts. They will simply dissolve their company before launching a similar business under a brand-new name. As this can have an adverse effect on both the UK economy and jobs, The Department for Business, Energy and Industrial Strategy (BEIS) is now calling for the insolvency process to be reformed.
Prime Minister Theresa May pledged to listen to ordinary workers, with the aim of changing how big companies are governed. Unfortunately, this promise was placed on the backburner due to intense Brexit negotiations; however, the collapse of big firms, such as Carillion and BHS, has brought the issue back to the government’s attention once again.
The Prevention of Phoenixing
The above firms’ insolvency not only resulted in the loss of tens of thousands of jobs, but it will reportedly cost the taxpayer up to £180m. The government now aims to stop the reckless directors from dodging debt, known as “phoenixing,” by allowing the Insolvency Service to disqualify directors and impose hefty fines.
Corporate governance will reportedly now be able to both investigate directors and hold them responsible for their debt when they attempt to avoid their responsibilities. However, it is unknown whether the new rules will be enough to deter other directors from claiming insolvency to avoid debt.
The new regulations are currently being processed and are expected to come into effect in January 2019. Large companies will then need to explain their compliance with the S172 Companies Act 2006, detailing the decisions they made and the ways they have affected their business, stakeholders, and employees.