While directors may be prohibited from holding office in certain circumstances, it would seem that such provisions do not at present effectively protect customers, suppliers and employees. This is not really an acceptable situation. Suppliers provide goods and services on credit, which means they get paid some time after the date on which the goods or services were provided, say two months later. If the company which is their customer becomes insolvent and ceases to trade, the supplier will not get paid for the goods and services he has already provided. He may be lucky and receive a part of the money owed to him but on the whole it is the supplier whose money is at risk and who loses out if the company becomes insolvent.
Customers make advance payments to secure goods and services.
If the company ceases to trade before these goods or services are provided, the customer is likely to lose all of his deposit. Similarly guarantees for goods bought or services provided are likely to be worthless if the company ceases to trade before the guarantee expires. The amount lost by customers at the present time in such ways in the UK is apparently of the order of 18 million each year. Employees also lose out if a company becomes insolvent. Salaries, wages, holiday entitlement and redundancy compensation can be lost, quite apart from the social costs of the resulting unemployment to employees and to the community.