In a move likely to have been triggered by the high-profile failures of BHS Ltd and Carillion plc, the Department for Business, Energy & Industrial Strategy (BEIS) is consulting on insolvency and corporate governance. In launching three separate consultations, the Government says it is specifically seeking to ensure the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency.
The three separate consultations are as follows:
- In May 2016, the Insolvency Service launched its consultation, “A Review of the Corporate Insolvency Framework: A consultation on options for reform". The Government consulted on four proposals: creating a new moratorium; helping businesses to continue trading through the restructuring process; developing a flexible restructuring plan; and exploring options for rescue financing. The consultation closed on 6 July 2016 and the Government published responses received on 28 September 2016.
- On 9 February 2018, Stephen McPartland MP, Chair of the Regulatory Reform Committee, called on the Government to bring forward proposals to reform the insolvency framework. Various commentators had raised concerns about the ability of the Insolvency Service to deal with large corporate failures such as Carillion plc.
- In March 2018, another BEIS consultation document was published, “Insolvency and Corporate Governance”. Views were sought on new proposals to improve the governance of companies when they are in, or approaching, insolvency. Proposals include: directors responsible for the sale of an insolvent subsidiary of a corporate group to take proper account of the interests of the subsidiary’s stakeholders; reversal of value extraction schemes; investigation into the actions of directors of dissolved companies; and strengthening corporate governance in pre-insolvency situations. The consultation ended on 11 June 2018. According to BEIS, the Government is analysing the responses received.
- Tackling corporate insolvency and the risks associated with phoenixism was also included in the Autumn Budget 2017 and Spring Budget 2018. The Government announced that it would explore ways to tackle those who deliberately abuse the insolvency regime in trying to avoid or evade their tax liabilities, including through the use of phoenixism. On 11 April 2018, HMRC published a discussion paper “Tax Abuse and Insolvency”. The consultation ran until 20 June 2018.
This is clearly an area where there is a great deal of focus and development. For BEIS, the overriding aim is to seek views on how arrangements could be made better to ensure that lessons are learned from large company failings. The purpose of this Commons’ briefing paper is to consider all three consultations in detail.