Transparency and trust: not such bad ideas after all?

A new discussion paper — Transparency and trust: enhancing the transparency of UK company ownership and increasing trust in UK business — published on 15 July by the Department for Business Innovation & Skills (DBIS) contains some radical proposals relating to the duties and liabilities of company directors. Anyone interested in this area should read the discussion paper and let DBIS have their comments on the proposals by 16 September 2013.

If there is one theme of the great financial crisis upon which most people can agree, it is probably that directors guilty of nefarious conduct — whether through malice or incompetence — have been difficult to effectively collar if you are a creditor who has suffered loss. The discussion paper addresses that difficulty and puts forward some proposals designed to make life easier for creditors seeking redress and harder for delinquent directors seeking to hide.

One of the most interesting ideas put forward is to stimulate a market in the sale of wrongful and fraudulent trading claims. Currently, such claims that can make a director personally liable for the debts of a company can only be brought by the relevant liquidator for the benefit of the insolvent company. An administrator cannot pursue this type of claim — which makes no sense at all. Commonly, these claims fail for lack of funds to pursue them. The situation will get worse when new rules on conditional fee arrangements are introduced in 2015. The proposal is to allow administrators to make such claims and to allow administrators and liquidators to sell such claims to third parties. If a market develops in such claims, the idea is they are much more likely to be pursued. If the claims are pursued more often, this will make directors more wary of breaching their duties — or at least make them fork out some money to buy the claim from the liquidator or administrator…

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