A group of corporate governance experts has spoken out against the Government’s planned changes to the insolvency system.
Both the Institute of Chartered Secretaries and Administrators (ICSA) and the Institute of Directors (IoD) have claimed that the changes, proposed in the wake of the British Home Store (BHS) collapse, could force more companies into liquidation. This was due to the higher risk for company directors.
The proposals, outlined in a recent Government consultation, would see the directors of a parent company where a subsidiary had been sold, liable for that subsidiary for up to two years.
According to ICSA’s policy director, Peter Swabey, this could “preclude the possibility of failing companies being acquired and returned to profit, as the costs and effort required would be outweighed by the risks.”
The Government consultation was a direct response to the collapse of BHS, where MPs accused Philip Green of “rushing” through the sale of a failing company to a “wholly unsuitable purchaser”.
Although both ICSA and the IoD agreed that the Government needed to take action to prevent a director or directors from dodging their responsibilities, it said they should not remain liable for businesses they no longer owned.
Roger Barker, the head of corporate governance at the Institute of Directors, said: “We would warn against proposals making holding company directors responsible for up to two years after the sale of a subsidiary has gone through – it makes no sense for directors to remain responsible for companies that are no longer under their control.”
Mr Swabey pointed out that additional legislation was unnecessary and that the Government should concentrate on enforcing current regulations.
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