By Daniel Hunter
Measures to help improve corporate transparency and beef up director disqualification laws have been outlined today (Monday) with the publication of a discussion paper by the Business Secretary Vince Cable.
Speaking at the Responsible Capitalism conference, hosted by the think tank Reform, Dr Cable announced the launch of the Transparency and Trust paper. This sets out a number of proposals aimed at addressing opaque company ownership structures and improving the accountability of company directors.
The proposed reforms seek to promote growth by improving confidence in the UK as an open and trusted place to invest and do business. Greater transparency and improved trust will mean honest entrepreneurs and investors can do business more securely in the UK and not be disadvantaged by those who don’t play by the rules.
The first part of the paper looks to inject greater transparency around who really owns and controls companies in the UK. The paper sets out how the UK will implement its G8 commitment to a central registry of companies’ beneficial owners. In addition it proposes the abolition of bearer shares and measures to tackle misuse of corporate directors and nominee directors. These reforms would help to tackle tax evasion, money laundering and the financing of terrorism, and improve the investment climate in the UK.
The second half of the paper sets out ways of making directors more accountable for misconduct or company failure — including directors of banks. Key proposals include giving regulators greater powers to disqualify directors in specific sectors and allowing courts to take more account of the social impacts of directors’ actions. The paper also asks whether disqualified directors should directly compensate creditors after a company collapses, be offered education before returning to such a position and whether disqualified foreign directors should be barred from holding a similar position in the UK.
“A stronger economy depends on investors, employees and the wider public having trust and confidence in companies and those that are running them," Business Secretary Vince Cable said.
“The reality is that the vast majority of companies and directors contribute productively to the economy, abide by the rules and make an enormous contribution to society. However, it is also apparent that an errant few operate in the shadows, creating complex ownership structures which only serve to deceive.
“With a strong commitment coming from the G8, we’re now shining a light on who really owns and controls companies in the UK. We’re also proposing tough measures to beef up the system for holding directors to account if they don’t play by the rules or take their responsibilities seriously. This will mean honest, hard-working directors are not disadvantaged and will give the public greater confidence that irresponsible directors will face consequences for their actions.”
The main elements of the ‘transparency’ section of the paper include:
- Options for the implementation of a central registry information on of companies’ beneficial ownership maintained by Companies House, following on from the Prime Minister’s G8 commitment. The registry would hold information on individuals with more than 25 per cent of shares or voting rights in a company, or who otherwise control the way a company is run. Key questions include whether information in the registry should be made public, what information is to be provided and how it is to be updated.
- The abolition of bearer shares given the potential for misuse. These allow the true owner of these to remain hidden as their name is not disclosed on a company’s register of members.
- Whether nominee directors should be required to disclose their status to Companies House and who they are acting for and whether directors should be banned from signing away their responsibilities as directors. While nominees can be used in legitimate commercial scenarios, it can also mean the true owners of a company are hidden.
- The abolition of corporate directors — a situation where a company is director. Although rarely used, these can result in complex corporate ownership structures which hide the beneficial owner’s true identity.
The main elements of the ‘trust’ section of the paper include:
- Asking whether bank directors’ duties need to be changed, as recommended by the Parliamentary Commission on Banking Standards, and whether we should improve the way we tackle unacceptable conduct by company directors. This includes whether the courts should take account of material breaches of sector regulations when deciding whether to disqualify a director.
- Allowing the courts to take account of the impact a director’s actions have on society and their previous failures when considering disqualification action.
- Giving courts the power to make compensation awards against a director when making a disqualification order and allowing liquidators to sell or assign fraudulent trading actions to creditors.
- Offering directors education at the end of their disqualification or a slight reduction in the disqualification period if they take up the offer.
Changing laws to prevent disqualified overseas directors from being a director of a UK company.
- Extending the time limit for when disqualification action must be taken against the directors of an insolvent company. Currently standing at two years, the paper proposes a new five year limit to take into account more complex insolvency cases.
Further issues within the paper aimed at improving trust in the insolvency system include:
- A review into the use of pre-packs administrations, led by Teresa Graham, after concerns have been raised about their transparency. Publishing the Terms of Reference for the review, this will specifically look at whether they encourage growth and employment and provide value for creditors. The review will report back early next year.
- Government is also taking steps to improve trust in the professionals who deal with businesses when they go insolvent. A report by the independent reviewer, Professor Elaine Kempson of Bristol University, has been published today setting out a series of recommendations for improvement. Government will respond to the report later this year.
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