One of the biggest obstacles to recovering an outstanding debt has always been if a company ceases trading - this is basically a dead end, as once the company ceases to exist, it's impossible to continue chasing the individuals who ran it. Or is it?
Under the terms of the Small Business, Enterprise and Employment Act 2015, which received royal assent on March 26th 2015, new rules will apply to disqualified directors, and particularly to any losses incurred by creditors due to director misconduct.
The government refers to this as the Act's 'Creditor Redress' measures, and says: "The Secretary of State will have new powers to seek a compensation order against a disqualified director where misconduct for which they have been disqualified has caused identifiable loss to creditors. Liquidators and administrators will be able to assign certain legal claims to third parties such as creditors."
In essence - if somebody took your money, drove their business into insolvency and did a runner with the proceeds, you may soon be able to get it back if you can demonstrate misconduct on the part of the director.
Equally if the business was forced to close because the director was disqualified, and you were left unpaid for work done or for supplied goods, the new rules may allow you to pursue personal recovery action against the director responsible for your losses.
It's about time - the notion that companies exist entirely remotely from the people who run them is an outdated one, particularly with the growth in self-employment and micro-businesses in recent years.
We work hard to protect small-business owners from incurring losses due to the misconduct of others, and this legislation should ensure that the law is on our side - and on your side - in the years to come.
This is an important change in legislation, so let's look at the details properly:
- Strengthen the director disqualification regime and increase business and consumer confidence that 'wrongdoers' will be barred.
- Simplify the procedure for reporting on the conduct of directors of insolvent companies.
- Strengthen the mechanism to compensate creditors for director misconduct.
- Secretary of State can apply for a compensation order where identifiable creditor losses arose from director misconduct.
- Liquidators and administrators can assign legal claims to a third party (e.g. to a creditor or claims firm).
"More compensation for creditors who have suffered from director misconduct." (From the BIS Fact Sheet on Directors' Disqualification and Creditor Compensation)
Whichever way you look at it, it seems very clear that this is a measure aimed specifically at putting more money back into the bank accounts of creditors to whom it rightfully belongs.
It might not be welcomed by some company directors, but remember it only applies where director misconduct has led to identifiable losses - and you can hardly call it unfair allowing those losses to be claimed back.
For legitimate company directors who act in good faith at all times, even if their company ends up going bust, there should still not be any personal liability for losses incurred by creditors that are due not to misconduct, but simply to the vagaries of the business world.
A further measure is being introduced to prevent 'corporate directorships' - where a company acts as a director of another company - amid concerns that this reduces transparency and accountability by disguising the identity of the individuals acting as directors.
This measure is subject to some exemptions, aimed at low-risk but high-value circumstances, but generally speaking the practice will soon be banned, making it much easier to identify all of the individuals with decision-making powers at the most senior levels of any company.