Disqualified directors could be made personally liable for compensating creditors following company collapse, under new plans outlined by business secretary Vince Cable in recent weeks.
As part of a broad effort to improve public trust in business and company transparency, Dr Cable has suggested the possibility that “disqualified directors should directly compensate creditors after a company collapses”.
“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,” he said.
In principle, the move applies only to directors who behave inappropriately or irresponsibly, and therefore are instrumental in bringing about the failure of their company.
However, it has already raised concerns about the potential knock-on effect on directors whose business ventures fail despite their best efforts.
George Cowcher, chief executive of the Derbyshire and Nottinghamshire Chamber of Commerce, says the move is misguided at a time when the UK economy is only just beginning to claw its way out of recession.
“Entrepreneurs are going to do a double-take if laws are passed which hold them responsible for all their company’s debts if they fail,” he predicts.
“Many directors will hesitate before taking the plunge if they know they could be held wholly accountable for all the company’s debts if it fails.”
At present, the proposals are simply part of a discussion paper; however, it will be interesting to see the reaction from business leaders if Dr Cable proceeds to introduce them into law.