Vince Cable unveils plans to make ‘reckless’ directors pay for failure

Business secretary Vince Cable

Business secretary Vince Cable has set out plans to make “reckless” company directors personally liable for failure and ban them from acting as a company director in any sector.

The Department for Business, Innovation & Skills has today published a discussion paper which proposes a range of measures to crack down on company directors who “do not follow the rules”, in response to company failures during the financial crisis.

It suggests amending the statutory duties for directors working in the banking sector to require senior executives to take a more responsible approach to managing large financial services companies. The recommendation was first made by the Parliamentary Commission on Banking Standards in June.

The Government says one option to strengthen the disqualification of directors would be to allow regulators such as the Financial Conduct Authority, the Prudential Regulation Authority and The Pensions Regulator to extend bans in a particular industry, such as financial services, to prevent people from acting as a director in any sector.

It has also suggested taking into account factors such as the nature and number of previous company failures a director has been involved in when ruling on disqualification proceedings.

Under the proposals, if directors act fraudulently or negligently they could have to personally compensate those who have suffered losses as a result. Liquidators would have the right to sell claims to creditors, to increase the chance of directors being pursued for fraudulent or wrongful trading.

The Government has also said it wants to explore a requirement for a compensation award at the time directors are disqualified.

Other measures to strengthen disqualification powers are to increase the time limit for bringing disqualification cases against insolvent firm directors from two to five years, offering disqualified directors training to run successful companies, and an option to disqualify directors convicted of a criminal offence in relation to overseas companies from acting as directors in the UK.

Business secretary Vince Cable says: “Businesses and individuals who behave honestly and responsibly should not be placed at a disadvantage by those who do not play by the rules.

“These proposals will provide businesses, investors, employees and consumers with confidence that companies are acting fairly, and that those who deliberately or recklessly break the rules will be punished.”

These proposals come after regulators have been unable to bring action against key figures in the financial crisis, such as former Royal Bank of Scotland chief executive Fred Goodwin and former HBOS chief executive James Crosby. While both men have been stripped of their knighthoods, neither has been subject to regulatory action.