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Corporate Governance

Volume 638: debated on Tuesday 20 March 2018

The Government are launching a consultation on improving the corporate governance framework to ensure the highest standards of behaviour from those who control companies.

The UK is already recognised as having a leading international reputation for corporate governance. After consulting last year, the Government are preparing secondary legislation to implement a range of reforms that build on and enhance the current framework in relation to executive pay, strengthening the employee and wider stakeholder voice in the boardroom, and corporate governance in large privately held businesses.

Today’s consultation takes this essential work further by improving the corporate governance of firms when they are in or approaching insolvency, and seeking views on a number of areas where our existing rules and processes may need updating. This consultation seeks to respond in a balanced and proportionate way to reinforce public trust and confidence in business, so that the vast majority of responsible companies do not have their reputation besmirched by a small few.

The consultation considers:

The sale of businesses in distress: The consultation explores potential changes to ensure that directors responsible for the sale of an insolvent subsidiary of a corporate group take proper account of the interests of the subsidiary’s stakeholders. The proposals seek to ensure fair outcomes when major companies get into difficulties, but to avoid putting barriers in the way of credible business rescue efforts.

Reversal of value extraction schemes: The Government want all creditors to be treated fairly in an insolvency situation and is seeking views on potential changes to how certain transactions, or a series of transactions, entered into before insolvency can be challenged and clawed back if unlawful.

Investigation into the actions of directors of dissolved companies: There are difficulties caused when companies are dissolved with outstanding debts or allegations of director misconduct, which the insolvency service does not currently have the necessary powers to investigate.

Strengthening corporate governance in pre-insolvency situations: Whether steps should be taken to improve governance, accountability and internal controls within complex company group structures;

whether there are further opportunities to strengthen the role of shareholders in stewarding the companies in which they have investments, while the payment of dividends should remain for the directors to decide, having regard to their obligations and guidance, whether the legal and technical framework within these decisions are made could be improved and made more transparent;

whether the commissioning and use of professional advice by directors is done so without a proper awareness of their duties as directors; and whether and how a supply chain and other creditors can be better protected in the event of a major insolvency, while preserving interests of shareholders.

Today I will be placing copies of the consultation document in the Libraries of the House.