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Government crackdown on phoenix firms revealed

Directors that establish phoenix companies to avoid paying workers or pensions could face “hefty” fines or disqualification, the government has announced.

Business minister Kelly Tolhurst said the Insolvency Service would be given new powers to punish those cases where companies have been dissolved to avoid paying debts to creditors, staff and pensions.

Ms Tolhurst said: “Some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies. This can’t continue.

“That is why we are upgrading our corporate governance to give new powers to authorities to investigate and hold responsible directors who attempt to shy away from their responsibilities.”

The action on phoenix companies is part of a raft of measures relating to corporate governance and insolvency published in response to a consultation conducted earlier this year.

These include new measures to giving struggling companies more time to rescue their business through restructuring plans.

The government said it planned to improve the quality of directors’ work by establishing a code of conduct and introducing training to make directors aware of their legal responsibilities.

Dividend payment practices will also be targeted, with new rules forcing bosses to explain to shareholders how a company can afford dividends alongside other financial commitments such as capital investments, workers’ rewards and pension schemes.

The government will also ask investment manager trade body the Investment Association to look at whether companies are giving shareholders their annual vote on dividends.

Readers' comments (2)

  • Paul Brightey

    Heavens, this isn't new - they have been talking about this for at least 30 years, and the problem is as much to do with lack of implementation of existing laws, as with the lack of new ones. There are too many individuals that are using the system to liquidate debts that often their own mismanagement have created. How about this simple rule to overlay existing laws - anyone who has been a director of a failed company within the previous 5 years cannot be a director or be in a position of control of the phoenix company for the following five years ???

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  • Well said Mr Brightey. However just applying this to phoenix companies won't catch all the problems in our industry. Consider this:

    26/07/16 - Dunne Building & Civil Eng. Ltd (now re-named Bathgate Realisations Civil Eng Ltd) was placed in Administration, along with CLR Plant Hire (now re-named Bathgate Realisation Plant Ltd).

    11/08/16 - New company Keltbray Structures Ltd is incorporated. Although Gordon Dunne is not made a Director, he has 20% of the shares in this new company.

    16/08/16 - Press announces that Keltbray Structures Ltd has acquired some of the assets of Dunne Building & Civil Eng Ltd from the Administrators, including the yard and office in Bathgate and plant and equipment.

    16/08/17 - First Confirmation Statement (at 10/08/17) lodged at Companies House with no changes - the implication that Gordon Dunne therefore still owns 20% of the company (which probably now has a market value)

    04/12/17 - Press announces that the High Court has ordered Gordon Dunne to pay Multiplex £4 million

    22/12/17 - Second Filing at Companies House of the Confirmation Statement dated 10/08/17 - This document states that on 18/11/16 (yes, 2016!) Gordon Dunne transferred his 20% share of Keltbray Structures to Johan Dunne

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