Pedestrians cast shadows as the walk near Cannon Street Station in London, U.K. (Photographer: Simon Dawson/Bloomberg)

Irresponsible Company Directors Face Fines Under New U.K. Rules

(Bloomberg) -- The U.K. government said it will move forward with plans to punish directors who fail to safeguard their workers from the effects of a company’s bankruptcy.

New powers announced Sunday will be given to the U.K. Insolvency Service, including the ability to issue fines or even disqualifications to company bosses if they are found to have tried to avoid paying a dissolved company’s debts.

"Some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies," the government’s minister for small business, Kelly Tolhurst, said in a statement. "This can’t continue."

The plans, proposed in March, follow some high-profile collapses, including Carillion Plc in January, which left ministers grappling with how to salvage tens of thousands of jobs and public-private contracts affecting schools, hospitals, roads and military facilities. In July, London-based Gaucho Group Ltd. entered administration, the British version of bankruptcy protection, after the restaurant company said it had struggled with high debt levels and poor performance of some of its burger outlets.

Under the new rules, directors could be disqualified from managing companies for as long as 15 years if their conduct during a corporate insolvency is found to be "unfit." Struggling but "financially viable" companies also will be given more time to turn their businesses around. If they fail, directors may face investigation if they’re perceived to have prioritized the protection of their interests or those of their investors over securing employee salaries or pensions, according to the statement.

Stuart Frith, president of insolvency trade body R3, welcomed the plans and said it would address the issue of directors "deliberately dissolving businesses to avoid paying their debts."

The U.K. Investment Association, which represents investment managers, also will get powers to ensure bosses can’t reward investors when companies are in distress. The association will be able to investigate firms to make sure shareholders get an annual vote on dividend payouts.

Further detail about the new measures will be published in the fall. A new law will also be introduced in coming months requiring companies to reveal the pay ratio between bosses and employees.

©2018 Bloomberg L.P.