Corporate Governance and Insolvency — House of Commons, 2018-03-20
Topic: Domestic Commerce
Andrew James Griffiths (Conservative, Centre-right): I am pleased to announce that the Government have today published a consultation paper on corporate governance and insolvency. Copies have been placed in the Library of the House The United Kingdom is recognised as having a leading international reputation for corporate governance. That gives us an international competitive advantage, and is an important factor in making the UK the best place in the world in which to invest and do business. The Government are determined to ensure that our corporate governance regime remains the envy of the world Large corporate failures rarely happen, but when they do, their effect on stakeholders such as employees and smaller suppliers can be very damaging. In those circumstances, it is important to ensure that those in charge of the company concerned act properly and fully discharge their responsibilities. The Government are determined to ensure that our corporate governance framework clarifies those responsibilities, protects the economy and enhances public confidence, while continuing to foster conditions for business to thrive Last year we announced a number of reforms to strengthen the corporate governance framework in relation to executive pay, the voice of employees and wider stakeholders in the boardroom, and corporate governance in large privately held businesses. Those are now being delivered, and all of them will contribute to more robust and well-founded decision making in our large companies. We are determined to learn the lessons from corporate failures such as Carillion. We believe that we can do more to strengthen the corporate governance framework as it applies in insolvency situations. We intend to reduce the risk of major company failures occurring through shortcomings of governance or stewardship, and to strengthen the responsibilities of directors of firms when they are in or approaching insolvency The consultation will focus on three specific measures. Considerable public concern arises when owners of a distressed business, including a business within a group of companies, sell it on without proper regard for its future prospects or the interests of its creditors and employees. We propose to require directors, including directors of holding companies in respect of sales of subsidiaries, to have a greater regard to any future consequences of the sale of an insolvent or near-insolvent company for which they are responsible. In doing so, however, we will ensure that we do not put barriers in the way of credible business rescue efforts. We do not want to make it impossible to rescue businesses in distress Considerable public concern has also been raised when a company in financial difficulty has been rescued by new investment, only to find when it subsequently fails that the new investors have set up a series of complex financial schemes to protect their investment or minimise their losses, at the expense of other creditors. The Government will consult on measures to give insolvency practitioners the additional necessary powers to claw back, for the benefit of creditors, money that has been siphoned off through complex financing arrangements. Concerns have also been raised—by, among others, a number of hon. Members—about the difficulties that arise when a company has been dissolved, but it is then found that it has outstanding debts or there have been allegations of director misconduct. Those dissolved companies often reappear, phoenix-like, in a slightly different form and with a slightly different name, and start operating again. At present, the Insolvency Service does not have the necessary powers to investigate such cases, and we are determined to ensure that it does These measures will complement those published yesterday by the Department for Work and Pensions in a White Paper entitled "Protecting defined benefit pension schemes", which provides for stronger powers for the Pensions Regulator to prevent and punish those who would deliberately endanger a defined benefit pension scheme Corporate failures such as Carillion have raised concerns about some other aspects of our corporate governance framework. I do not wish to anticipate the current investigations of the circumstances leading up to Carillion’s failure, but I intend to use the consultation to seek views on a number of areas in which we may be able to do more to strengthen the rules within which UK companies operate. Those areas include the questions of whether steps should be taken to improve governance, accountability and internal controls within complex company group structures, and whether there are further opportunities to strengthen the role of shareholders in stewarding the companies in which they have investments. While the payment of dividends should remain for the directors to decide, having regard to their obligations and guidance, there is the question of whether the legal and technical framework within which these decisions are made could be improved and made more transparent and fairer. There are also questions about whether the commissioning and use of professional advice by directors is done with a proper awareness of directors’ duties, and how the supply chain and other creditors can be better protected in the event of major insolvency while preserving the interests of shareholders The reforms we propose will help prevent corporate failure and will strengthen the UK’s business environment, contributing to the success of our industrial strategy, and will cement our reputation as one of the best places to work, invest and do business. I commend the statement to the House.