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East Midlands Chamber News

Failed directors to be made personally responsible for debt

Vince CableBusiness Secretary Vince Cable is to propose making the people who ran failed companies personally liable for the firm's debts as part of an overhaul of company rules.

He will add that directors deemed to be reckless should be disqualified from being able to work at another firm.

Mr Cable also wants to allow individual regulators to disqualify directors in their particular industries.

His proposals follow concerns over the toughness of corporate oversight.

A series of banking scandals, such as Libor and the mis-selling of PPI, as well as huge state bailouts in the wake of the financial crisis, have dented public confidence.

The business secretary is to announce the proposals in a speech at the London Stock Exchange at an event on "Responsible Capitalism" today.

A discussion paper on the proposals, entitled Trust And Transparency, will be published this week,the BBC reported.

But Mr Cable's plans could stall economic growth, George Cowcher, Chief Executive of the Derbyshire and Nottinghamshire Chamber of Commerce, the second-largest Chamber of Commerce in the UK, has warned. He expressed fears that if not very carefully applied the move could stifle entrepreneurism.

“This could very seriously backfire on Mr Cable,” he said.

“The country is just beginning to claw its way out of recession and it is the private sector which is leading the growth.

“But entrepreneurs are going to do a double-take if laws are passed which hold them responsible for all their company’s debts if they fail. Many risk everything to set up businesses but there are protections in place at the moment to leave them with at least a roof over their heads if they get it wrong.

“It is important that protocols exist to prevent directors from being reckless and it is important those protocols are both observed and enforced. But many directors will hesitate before taking the plunge if they know they could be held wholly accountable for all the company’s debts if it fails.

“And it is essential that the protocols themselves, the red tape, are not allowed to be the cause of those business failures. We would argue that perhaps the red tape issue should be resolved first so entrepreneurs and directors of SMEs can focus on the job in hand rather than bureaucracy.

“We will have to see exactly where Mr Cable plans to draw his line but we would strongly caution him against blanket legislation that will cut off the green shoots of recovery at this time.”

For details about the consultation on Mr Cable's proposals click this link.