The government has now released a response to its consultation on insolvency and corporate governance (found here). This consultation sought views on ways to reduce the risk of a company failing through poor governance, and stewardship and improvements that could be made to the insolvency framework in such circumstances.
In light of the responses, the government has announced its plans to take forward various actions which will be subject to further consultation where necessary.
Transparency requirements and group structures
One aspect of the consultation looked at concerns regarding the oversight and control of complex group structures and considered how they should be managed and governed. The government has announced that it will pursue options which will require groups to provide explanations of their corporate and subsidiary structures, which could require groups of a significant size to provide clear diagrams together with a narrative explanation.
The government is also considering simplifying the process for dissolving redundant companies and streamlining group structures.
The consultation highlighted concerns regarding shareholder stewardship, especially that of institutional shareholders. It considered whether and how it could be made stronger and more effective.
The Department of Work and Pensions is currently consulting on new regulations that would ensure pension trustees set out in their statements of investment principles, how they take account of material considerations and what their policies are in relation to stewardship.
The government also sees the revised Shareholder Rights Directive as a key component in improving stewardship, as there are requirements for asset owners and managers to publicly disclose their policy of engagement and state annually how they have implemented the policy.
Dividend payment framework
This aspect of the consultation considered if the concept of 'distributable profits' remains fit for purpose or if more transparency and accountability to shareholders for dividend decisions and broader choices on how surplus profit should be allocated.
While the government expect the new s.172 reporting requirements will lead to better reporting, they intend to also bring forward other measures.
They will continue to work with legal, accountancy and business groups to review the current dividend regime, which could include requirements for disclosures on the audited figure for available reserves and distributable profits within company's annual reports. They may also look to introduce the concept of a solvency-based dividend regime as seen in North America and Australia. This would require companies to make a statement that after the payment of a dividend the company is still able to pay its debts.
Boardroom effectiveness, directors' training and guidance
The consultation considered if when using professional advice that directors did so with sufficient awareness of their legal duties under the Companies Act. While many respondents felt that directors had a good awareness of their legal duties, it was felt that more training could be provided due to limited experience of dealing with companies in financial distress or entering into insolvency.
With this in mind, the government will proceed with improving access to training and guidance which is tailored to different sizes of companies and is also considering if some level of training should be mandatory for large company directors.