In a new crackdown announced in August by UK Business Secretary Greg Clark, directors who dissolve companies to avoid paying workers or pensions could face hefty fines or be disqualified from running a business.

Under the shake-up, bosses will face investigation if they try to escape paying a dissolved company’s debts to their own staff and creditors.

While the vast majority of UK companies are run responsibly, there are a minority of directors who deliberately dodge debts by dissolving companies then starting up a near identical business, with a new name. The practice is known as ‘phoenixing’ or ‘bumping companies’.

Business Minister Kelly Tolhurst said, “The UK is a great place to do business with some of the highest standards of corporate governance. While the vast majority of UK companies are run responsibly, some recent large-scale business failures have shown that a minority of directors are recklessly profiting from dissolved companies. This can’t continue.”

The government is further raising standards by ensuring bosses explain to shareholders how the company can afford to pay dividends alongside financial commitments such as capital investments, workers’ rewards and pension schemes.

Photo: Greg Clark