Government consultation launched on insolvency and corporate governance

Business Meeting 10 Print publication


During 2017 the Government introduced a raft of proposals intended to improve the corporate governance regime in relation to executive pay, strengthening the voice of employees and other stakeholders on the Board and within large, privately held businesses. The Government now wants to take this work further and look at ways to reduce the risk of major company failures occurring through shortcomings of governance or stewardship, and to strengthen the responsibilities of directors of companies which are in or are approaching insolvency.

The purpose of the consultation, which can be found here, is to seek views on proposals to achieve that aim as well as ensuring a fair balance of interests is maintained for all stakeholders. The consultation also explores options to improve the Government’s investigatory powers when things go wrong.

In particular, the consultation considers:

Sales of businesses in distress: This section proposes potential changes to ensure that directors responsible for the sale of an insolvent subsidiary of a corporate group take proper account of the interests of the subsidiary’s stakeholders. The proposal seeks to deter reckless sales, which could potentially harm stakeholder interests, in those limited circumstances. Where a large company or business cannot support itself then the directors involved in any sale, including directors of a holding company controlling the sale of shares in a subsidiary, should satisfy themselves that the sale would lead to a better outcome for creditors than putting the company into formal insolvency. The proposals seek to ensure fair outcomes when major companies get into difficulties, whilst avoiding putting barriers in the way of credible business rescue efforts.

Reversal of value extraction schemes: This section proposes introducing new powers to enable the reversal of inappropriate extractions of value from companies in financial difficulties by “rescue” investors in the event that the company subsequently enters liquidation or administration. The Government wants all creditors to be treated fairly in an insolvency situation and is seeking views on potential changes to how certain transactions, or a series of transactions entered into before insolvency can be challenged.

Investigation into the actions of directors of dissolved companies: This section explores proposals to extend existing investigative powers into the conduct of directors to cover directors of dissolved companies. Difficulties are caused when companies are dissolved with outstanding debts or allegations of director misconduct, because the Insolvency Service does not currently have the necessary powers to investigate.

Protection for company supply chains in the event of insolvency: This section explores whether supply chain and other creditors should be better protected and, if so, how this could be achieved while preserving the primacy of the interests of shareholders.

Strengthening corporate governance in pre-insolvency situations: This section explores a number of wider corporate governance issues that can be particularly relevant when companies get into financial difficulties and seeks views on whether further action by Government is needed in relation to:

  • the legal and technical framework regulating dividend decisions to improve transparency and accountability to shareholders and other stakeholders
  • strengthening the role of shareholders in stewarding the companies in which they have investments perhaps through a revised Stewardship Code
  • whether steps should be taken to improve governance, accountability and internal controls within complex company group structures
  • if directors are commissioning and using professional advice with a proper awareness of their duties as directors and the requirement to apply an independent mind.

The closing date for the consultation is 11 June 2018 and responses can be sent to