The government has announced plans to curb bonus and dividend payments at large companies which may be facing insolvency, with contracts guaranteeing bonus repayments for “serious director failings”.
The proposals have been unveiled in the wake of a series of corporate scandals, such as the failures of BHS and Carillion.
The government announced that large businesses would need to be “more transparent” regarding their finances, to ensure that they do not pay excessive bonuses or dividends during insolvency or serious financial difficulty.
Directors at the helm of failed firms may see their bonuses reclaimed, up to two years after they have been awarded, in an effort to discourage “rewards for failure”.
In addition, the government has proposed the creation a new regulator, underpinned by legislation, who will be able to deliver sanctions, fines and reprimands, as well as suspensions on individuals from holding directorships.
Minister for corporate responsibility, Lord Callanan, said “rogue directors” and auditors “must be held accountable.”
“Audit failure isn’t an abstract problem, it has real life consequences. Thousands of jobs have been lost in the wake of collapses like Carillion, and many more lives impacted, while wider confidence in big business is undermined, " he added.
BHS's former owner, Sir Philip Green, came under fire for paying himself or family members a comparable sum in BHS dividends and interest on loans while the pension deficit was growing.
Meanwhile former executives at collapsed outsourcer Carillion were forced to defend themselves from accusations they prioritised paying dividends over making pension contributions.
The measure is part of a wider consultation launched by business secretary Kwasi Kwarteng, aimed at improving regulator standards within the auditing sector.
The consultation is calling for wide-ranging reforms to modernise the country’s audit and corporate governance regime, the Government stated.
“Greater transparency and trustworthy information is essential to ensuring that investors, employees and consumers have an accurate picture of the health of the company” the government said in a statement.
The consultation, which will run for 16 weeks, will ask businesses and the public for their views on a wide range of issues, including whether companies should be obliged to set out their approach to audit through a published policy, and whether shareholders should have a formal opportunity to propose to the audit committee where the auditor should focus more closely.
Kwarteng said: “When big companies go bust, the effects are felt far and wide with job losses and the British taxpayer picking up the tab. It’s clear from large-scale collapses like Thomas Cook, Carillion and BHS that Britain’s audit regime needs to be modernised with a package of sensible, proportionate reforms.
“By restoring trust in our corporate governance regime and encouraging greater transparency, we will provide investors with clarity and certainty, cement the UK’s position as the best place in the world to do business, and protect jobs across the country.”