In July this year I will have been advising businesses of all sizes for thirty five years and I have encountered just about every kind of business challenge. One consistent theme that the smaller businesses owners suffer is the lack of protection they have when things go wrong.
There are even those that believe directors obviously set the business up as a limited company and clearly plan to avoid paying creditors from the outset. The common perception of closing a company for example is often that the creditors will likely lose out and the directors responsible should not be allowed to trade again. My experience is that the very people who make these statements change their view when it is their own company that suffers an unexpected event causing insolvency.
The vast majority of directors seeking debt help when becoming insolvent are decent, hard working individuals who are inevitably faced with extremely difficult decisions. These decisions are often made without support or knowledge of an insolvent liquidation; why would they?
Despite what some may think, directors often have consequences from liquidating their limited company and deserve better protection and advice. The Citizens Advice Bureau is under attack from financial cuts and does not provide advice to businesses owners, in any event.
Often the financial agreements signed in haste are not covered under the Consumer Protection Act and the directors are left to fend for themselves. The banks, a once trusted institution with local roots, have become anonymous institutions who wantonly abuse business owners at their discretion.
The Government’s Business Bank due to launch in the third quarter this year (2014) is a great idea and I wish it well. I hope it treats its customers fairly. The need for director protection however goes beyond the banks and impacts on most financial agreements.
Directors are believed to be ‘informed individuals’ and ‘sophisticated investors’, but I’m afraid this is simply not the case. Okay, there may be legislative issues surrounding the fact that a limited company is a legal entity within its own right and so, is not an individual consumer per se’; but something needs to be done to improve directors' protection and education surrounding the potential pit-falls of insolvency and other risk-laden areas of running a business.
I am not a lawyer but why can’t the Consumer Protection Act be amended to include directors of a company under a certain size? I am hopeful that something will change following on from Lawrence Thomlinson’s report.
Written by: Mike Smith