SMEs welcome government drive to combat unfair payment practices

The government has this week announced the launch of a consultation to improve the UK’s corporate governance framework and ensure the highest standards of behaviour in those who lead and control companies in, or approaching, insolvency.

Following last year’s corporate governance reforms to increase boardroom accountability and transparency of big business, the government has announced plans to raise standards even further by setting out proposals to crack down on directors and employers behaving irresponsibly.

The changes, which Business Secretary Greg Clark says will give the regulatory authorities “much stronger powers to come down hard on abuse and to make irresponsible directors bear the consequences of their actions,” form a key part of the UK’s Industrial Strategy, the government’s long-term plan to build a Britain fit for the future. Reforms include:

  • clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency
  • disqualifying and or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail giving the Insolvency Service new powers to investigate directors of dissolved companies
  • consideration of the legal and technical framework within which decisions are made on payment of dividends, and how it could be improved and made more transparent
  • strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.

Responding to the launch of the consultation to improve the UK’s corporate governance framework, Federation of Small Businesses (FSB) National Chairman, Mike Cherry, says: “After the commitment from the Chancellor to eliminate the UK’s late payments epidemic in his Spring Statement last Tuesday, it is pleasing to see the Business Secretary matching it with his own commitment to continue to reform corporate governance.

“At the very top of Government, we now see recognition of the scale and impact of poor payment practice by too many larger businesses and that more needs to be done.  These practices place small firms under financial pressure and at risk of closure, with eight out of ten small businesses now reporting being paid late.  This holds back economic growth right across the UK.

“The increased focus on the UK’s poor payment culture is due to positive measures like the Duty To Report on payment practices, the appointment of the Small Business Commissioner, and the tightening of corporate governance rules announced today.  However, it will take more to see a fundamental shift in culture and the total outstanding invoices paid late by the UK’s biggest businesses. 

“We want to see cross-party support for stronger rules that create a whole-board approach to late payments.  This should be done by giving a non-executive Director on Boards a specific responsibility for good supply chain practice including overseeing the firm’s statutory duty to report on payment practices.”

The government has published the Insolvency and Corporate Governance consultation setting out some of the proposals in more detail. It is also seeking views on new ways to protect payments to smaller firms in a supply chain which can be hit hardest when large companies become insolvent.

In order to successfully weather the current economic uncertainty, it is essential that UK SMEs receive the specialist support and guidance they need to make effective decisions both now and for the future.

Our SME business experts at Beavis Morgan are available to structure your business with cashflow and profit forecasting to measure performance and maximise opportunities. We work to a pre-determined plan, to help you avoid any nasty surprises.

Through our partner businesses, BM Structured Finance and BM Advisory, we are also able to help with sourcing and restructuring debt finance for SME businesses, as well as assisting with resolving issues which can impact on business performance and success, and finding innovative solutions for businesses and individuals in distress.

If you would like to discuss ways of improving the free cashflow in your business, please contact Steve Govey or your usual Beavis Morgan Partner.