Vince Cable toughens penalties against rogue directors

Reckless company directors will face tougher penalties for breaking the law, under rules proposed by Vince Cable, the business secretary.

Under Mr Cable's plans, directors convicted of offences overseas would be banned from running British companies, and ministers could ask courts to make disqualified directors pay compensation to victims.

In addition, judges may be put under a duty to consider factors such as previous business failures and overseas conduct when they assess whether to disqualify an executive.

The business secretary said that while the "vast majority" of directors in the UK ran their businesses in the right way, some people had suffered "unnecessary losses".

"Rogue directors can cause a huge amount of harm in terms of large financial losses, unnecessary redundancies and life-long investments going down the drain," he added.

Legislation to enact the changes is expected to be brought forward in the next session of parliament.

However, Nick Pike, a partner at the law firm Pinsent Masons, was sceptical over whether the rules would have much effect.

"I think it's tinkering," said Mr Pike. "I don't think it's particularly significant."

He said that granting compensation to individual victims of rogue behaviour could conflict with a liquidator's existing right to sue a director for damages on behalf of the company. It was also unclear whether compensation would go to "victims who make a fuss" or to all creditors.

Mr Pike added that if the aim was to increase the number of disqualifications, it would require more funding for the Insolvency Service.

The number of disqualifications fell from 1,437 in 2010-11 to 1,031 in 2012-13.

Giles Frampton, the vice-president of the insolvency trade body R3, suggested that the government's approach to rogue directors was "far from joined up".

"While [the Department for Business, Innovation and Skills] is trying to bolster powers to deal with directors, the Ministry of Justice is ploughing ahead with changes to insolvency litigation funding that will make it harder for insolvency practitioners to pursue directors and third parties that have taken money out of businesses that belongs to creditors," he said.

However, Roger Barker, director of corporate governance at the Institute of Directors, praised ministers for toning down their plans.

He said the original proposals suggested that directors could be automatically disqualified after directing a certain number of failed businesses - on the lines of "three strikes and you're out". He added: "This would have sent a negative signal concerning the UK's attitude to enterprise and new business creation."

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