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Will the governments cost cutting measures affect the ability of the Department for Business, Innovations and Skills (“BIS”) to identify and deal with

A recent R3 report indicated that bad management and incompetence was to blame for 57% of corporate insolvencies while nearly 40% of business could have been rescued if professional advice had been sought earlier.

With almost 60% of Insolvency Practitioners already believing that the UK Insolvency regime is overly forgiving towards directors who fail this is surely not going to change their opinions

It has been speculated that cost cutting at the Insolvency Service the agency of BIS that deals with company investigations and disqualifications will be as high as 40% of its annual budget. This is obviously going to lead to them focusing on the management of the ever increasing personal and corporate insolvency caseloads and moving away from the costly, time consuming investigation work. This will ultimately lead to many more directors who ought to be investigated and possibly disqualified falling through the net and allowing them the opportunity to repeat there mistakes and put further creditors and jobs at risk.

A possible solution to this problem may be to introduce stricter punishments for directors of failed companies such as a three strike your out policy.  For example if you have three company failures over your lifetime you are automatically debarred from being a director or being involved in the management of a company for 10 years. No investigation just a straight 10 year ban.

This might make directors take a tighter grip of there companies, identify any problems and look for solutions a lot sooner.

So if cost cutting is required to help reduce the government deficit then by increasing the penalties for directors who fall foul of the rules this may counter affect any potential loss of belief in the disqualification procedure and remind directors that they can’t get away with any mismanagement.

Posted in Insolvency
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