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Government proposals to enhance corporate transparency and accountability 
By James Cooper and Laura Cooke (Clyde & Co LLP).
April 2014

On 21 April 2014 the Department for Business Innovation and Skills (BIS) published the Government's Response to its discussion paper Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business (the Paper).

The Paper outlined a range of proposals to enhance transparency of UK company ownership and increase trust in UK businesses by focusing on:

• improving transparency around who owns and controls UK companies (Part A)
• making directors more accountable for failure to fulfil their duties (Part B)

The overwhelming message in the Response is that the Government is committed to improving corporate transparency and accountability in the UK. It therefore intends to proceed with the majority of the consultation proposals, subject to certain amendments. This newsflash sets out the key proposals adopted by the Government in relation to Part B only:

1. As the current Schedule 1 of the Company Directors Disqualification Act 1986 (CDDA), which sets out the matters determining unfitness, is outdated and does not reflect the breadth of misconduct that could give rise to disqualification proceedings, the Government intends to amend the statutory framing of the matters determining unfitness. It will be replaced with a new, broader and more generic provision setting out the factors that the court must take into account including the materiality of the conduct, culpability of the individual and the impact of the individual's behaviour. The new set of factors will cover misfeasance, breaches of duty, legislation or sector regulation by an individual as a director, applying both domestically or overseas.
2. Allow a director's overseas misconduct to be taken into account in disqualification proceedings. Also to provide the Secretary of State with the power to disqualify an individual from acting as a director in the UK when convicted of a criminal offence in connection with the promotion, formation or management of a company overseas.
3. Increase the reach of the director disqualification regime. Although the Government stopped short of giving sectoral regulators powers to disqualify directors through their own processes, it is committed to improving the integration of sectoral regulatory regimes and the director disqualification regime and will do so by: 
   • including breaches of sectoral regulation within the replacement Schedule 1 of CDDA (see 1 above)
   • removing barriers to information sharing between sectoral regulators and the insolvency service
   • enhancing the ability for the insolvency service to share investigative information with other regulatory or enforcement bodies
   • committing to effective working between sectoral regulators, including those in key sectors such as the FCA and PRA and insolvency service.
4. Place greater personal responsibility upon directors for misconduct by allowing:&nsbp;
   • the secretary of state to apply to the court for a compensatory order to be made against a director who has been disqualified, where that director's actions have caused identifiable loss either to specific creditors or creditors generally
   • both the court and insolvency service to make compensation awards to a particular creditor, or group or class of creditors
   • a director against whom disqualification proceedings have been brought, or are proposed to be brought, to offer an acceptable compensation settlement as an alternative to going to court
5. The Government also intends to allow insolvency office holders to sell or assign to another party causes of action that arise on insolvency (including those for fraudulent or wrongful trading). This is to increase the chances of action being taken against miscreant directors.

Many of these proposals will require primary and secondary legislation which the Government intends to introduce as soon as Parliamentary time allows. There will therefore be some delay before anything comes into force. This should give companies plenty of time to prepare.