Commons Sense

House of Commons · Westminster Hall

Insolvency Law and Director Disqualifications — [Mr Speaker in the Chair]

14 June 2023 · 4 other contributors · 8,862 words

Opened by Rebecca Long-Bailey Lab Salford

Responding minister: Kevin Hollinrake

EmploymentBusiness Compliance

Summarised by AI from the official record, so it can contain mistakes.

Read the full transcript on Parliament.uk

At a glance

Rebecca Long-Bailey raised concerns about insolvency law and director disqualifications — [mr speaker in the chair] in Westminster Hall. A government minister responded.

Key points

  • Five years after the Carillion scandal, concerns persist about UK corporate governance, including high disqualification standards for directors and insufficient enforcement mechanisms.
  • Unite the union criticized fines against four Carillion executives as inadequate.
  • Figures from the Insolvency Service show misuse or abuse of bounce back loan schemes in nearly half of disqualifications.

Key requests to Government

Will the Government widen directors' duties to include workers and other stakeholders? Will they set clear definitions for when insolvency is deemed 'probable'? Why have proposals for worker representation on boards been shelved, and will they introduce Sarbanes-Oxley-equivalent legislation?

How the debate unfolded

MPs spoke in turn to share their views and ask questions. Here's what each person said.

Opened the debate

Rebecca Long-Bailey Lab Salford

Five years after the Carillion scandal, UK corporate governance remains dysfunctional with high standards for disqualification of directors, ambiguous laws around creditors' prioritization, and insufficient enforcement mechanisms. Unite the union criticized fines against four Carillion executives as a 'slap on the wrist.' The Insolvency Service's 2022-23 figures showed misuse or abuse of bounce back loan schemes in almost half of disqualifications. Workers at Dawnfresh Seafoods and Orchard House Foods were left without income, while directors walked away with wealth intact. Statutory redundancy payments cost taxpayers £300 million over two years.

Other contributors (4)
  • Jim Shannon DUP Strangford

    Commends the hon. Lady for securing the debate, highlights that big businesses can use accountancy to their advantage by going insolvent and trading under different names, leaving suppliers and sole workers with no option but to go bankrupt themselves; mentions constituents who have experienced this injustice. Small companies suffered significantly, with business owners having to sell their properties and businesses due to honouring debts while others did not.

  • John Martin McDonnell Lab Hayes and Harlington

    Mr McDonnell complimented his hon. Friend on her speech and expressed that he was here to listen to the Minister's report. He discussed a report by Lord Prem Sikka which identified the chaos in regulatory bodies involved with financial regulation, including 41 different agencies, some of which were ineffective and allowed those who committed economic and financial crimes to walk away without any loss. Mr McDonnell also criticized the Financial Conduct Authority for being asleep at the wheel during Andrew Bailey's directorship. Discussed criminality in company registration at Companies House, mentioning a fraudster who registered himself as the 'chicken thief' with an address on the 'Street of the 40 Thieves'. The MP has had several representations from the bakers union over a period of time, indicating that insolvency is consistently used in the baking industry. The MP suggests there could be a specific examination by the Government of this sector due to an endemic pattern of behaviour. I raised concerns about the distressing of assets by accountancy firms, noting that this leads to situations where companies can be sold off without proper scrutiny.

  • Richard Thomson SNP Dunfermline and West Fife

    Directors have important duties to companies and shareholders, but when a company is at risk of insolvency, they must also consider the interests of creditors. The regime often fails those who can afford losses least, such as employees. Richard Thomson cited openDemocracy's estimate that fraud costs £290 billion annually in the UK and highlighted the Carillion collapse where directors walked away with pay and bonuses while employees suffered. He called for robust supervision, proper deterrents against criminality, and reforms to address corporate governance issues.

  • Seema Malhotra Lab Co-op Feltham and Heston

    Rising insolvencies, supply chain issues, and cost of living crises are pushing businesses to the brink. Rogue directors abuse the system by stripping assets and leaving workers unpaid. Since 2021, just 25 directors have been disqualified under new powers despite high levels of public concern. The Carillion collapse highlighted the need for robust corporate governance reforms which the Government has failed to deliver promptly.

Government Response

Kevin Hollinrake

It is a pleasure to serve under your chairmanship, Ms Fovargue. I add my grateful thanks to the hon. Member for Salford and Eccles for bringing forward this important debate. The Government absolutely believes in strong corporate governance and an effective insolvency regime. Most directors and businesses do the right thing, but failure is part of our economic system, and we need a regime that reflects that context. We believe there is a balance to be struck; while it is crucial to ensure robust oversight and accountability, we must also maintain an entrepreneurial spirit that encourages investment and business growth. Since 2019, large companies have been required to report annually on how wider interests have been taken into account in boardroom decision making. The Government confirmed plans to require very large companies to provide targeted new annual reporting on their management of risk, profit distribution, prevention or detection of material fraud, and audit and assurance policies for non-financial information. Secondary legislation is being developed to implement these measures. We also intend to move towards a system of regulation with a single independent regulator rather than the recognised professional bodies that we see today. We are keen to streamline regulatory frameworks such as those related to money laundering but reject arbitrary limits on directorships, preferring a red flag-based approach. Significant changes have been made around phoenixing, and 25 directors have been disqualified under these measures.

▸ Assessment & feedback
Summary accuracy