Directors face compensation claims under tougher new rules

Directors could be forced to pay compensation in the event of serious mismanagement as a result of new government plans.

Business secretary Vince Cable is reportedly considering new measures to toughen up consequences for directors who are found to have had serious failings in the job, including financial penalties.

The new rules would also make it harder for individuals to take on directorships when they have previously had a fraud conviction abroad.

Under the plans, which are expected to be introduced in next month’s Queen’s Speech, the government would have the power to suggest action against directors, such as forcing them to compensate victims or having them banned from taking on further directorships. A judge would have the final say.

Mr Cable said: “Some people have suffered unnecessary losses as a result of rogue behaviour. These measures will protect the British economy and our reputation as a good and fair place to do business by banning directors who have already been convicted of offences overseas from running British companies.

“Rogue directors can cause a huge amount of harm in terms of large financial losses, unnecessary redundancies, and lifelong savings going down the drain. It is only right that we should put the toughest possible sanctions in place, make sure we stamp out unfair practices, and deter those who are looking to act dishonestly.”

Business groups have given the proposals a cautious welcome. CBI director for competitive markets Matthew Fell said: “These new rules will help ensure that the UK’s world-leading company law regime continues to underpin its attractiveness as a place to do business.

“Tackling the damaging behaviour of a small minority of individuals will help to reinforce confidence in the majority of directors who run their businesses well and create jobs and growth throughout the UK.”

What do you think? Should directors face tougher penalties? Let us know in the comments.