The Government has published its response and action plan following its consultation in March this year on reforming the UK’s corporate governance landscape in the context of insolvent companies.

In its original consultation, the Government put forward various proposals to deal with perceived deficiencies in the management of troubled companies that may be leading to poorer outcomes for creditors, employees and other stakeholders.

In early 2017 we reported that following various scandals affecting business in the UK, the Government had made it clear that it intended to crack down on unacceptable boardroom behaviour.

A report published by the Business, Energy and Industrial Strategy Committee suggested that the existing law governing corporate governance did not require revision. However, the Committee recommended a number of measures including a voluntary code of corporate governance for large private companies.

Golden Rule 1: comply with the 7 general duties in the Companies Act 2006 (“the Act”)

In your capacity as a director you need to individually and personally comply with the seven codified statutory duties as a starting point.

In March 2018, the Department for Business, Energy and Industrial Strategy (BEIS) published a consultation on proposed reforms to the UK’s insolvency and corporate governance landscape. That consultation included certain significant proposals, including extending liability to the directors of holding companies that sell insolvent subsidiaries.

The UK government announced on 26 August 2018 that it will legislate to change aspects of the UK restructuring and insolvency systems. The reforms are a response to recent high-profile domestic corporate insolvencies and the various issues highlighted in those matters.

House of Fraser (HOF) has been in the headlines for months. It started with reports of widening losses and being dragged down by soaring costs and a drop in consumer sales, but official comment from the 169-year old retailer remained positive. Then there were rumours of CVAs and negotiations with landlords leading to further controversy. Finally, last Friday (10 August 2018), a stock market announcement delivered the news that Mike Ashley’s Sports Direct had brought House of Fraser out of administration for £90 million, just hours after the store had announced its collapse.

The Facts

Mr Tailby and Mr Courtman were appointed Administrators over three connected companies: TPS Investments (UK) Ltd; ABC Prop Co Holdings Ltd and CP Investment Holdings Limited. TPS was a property developer and owned a number of properties; two of these were transferred to ABC and one to CP.

The benefits of being a director of a limited company are many. Not necessarily because of the tax benefits but, rather, the personal protection given to directors by the corporate veil surrounding limited companies.

That corporate veil means that directors’ liabilities for the debts of the company are limited to the extent of their shareholding (maybe £1) in the UK this concept (outside insolvency) is sacrosanct and protected by the Courts.

In the recent decision in Carlos Sevilleja Garcia v Marex Financial Limited,1 the Court of Appeal helpfully summarised the justifications for the English law rule against claims for reflective loss and confirmed that the rule applies equally to unsecured creditors of a company as it does to shareholders.

Highlights

July 2018

2018 Summer review M&A legal and market developments

In this issue...

Contractual provisions.............................................................1 Company law...........................................................................4

Listed companies....................................................................7 Good faith................................................................................9

Authors: Philip Broke, Veronica Carson