UK set to strengthen corporate governance of insolvent companies

The UK's corporate governance regime has been stress-tested in the past decade and in many respects it has done well. However, in response to certain high profile corporate collapses which have caused heavy losses for creditors, in particular individuals and suppliers with little opportunity to protect themselves against losses, and in the spirit of continual improvement, the government has recently launched its "Insolvency and Corporate Governance Consultation".

The consultation indicates that the government is considering changes in the law to address:

• Making directors of holding companies personally liable to the creditors of an insolvent subsidiary that they sell where they could not have reasonably believed that the sale would be better for creditors than the subsidiary going into an insolvency process straight away.
• "Value extraction schemes" – clawing back from investors who have "rescued" an insolvent company but then, via complex investment structures, returned at least part of their investment before the company eventually goes into an insolvency process.
• Where companies have been dissolved in order to avoid paying creditors, making directors personally liable to the creditors where their action caused loss, possibly also with criminal liability.
• Strengthening corporate governance in pre-insolvency situations – recognising that better corporate governance can reduce the risk of companies going into insolvency processes, the consultation asks how this can be improved. Ideas such as promoting greater involvement and responsibility for shareholders will certainly prompt debate.

The consultation closes in June 2018.