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Government plans to clamp down on directors who dissolve companies to avoid paying workers or pensions have been welcomed by insolvency practitioners in the North West.

The proposals, which were announced on Sunday and represent the biggest changes to the corporate insolvency regime in almost 20 years, will also give struggling companies more time to rescue the business and help safeguard jobs.

Paul Barber, North West chair of the R3, the trade body for insolvency and restructuring professionals, said: “We welcome the government’s long-awaited announcement that it is moving forward with its corporate insolvency reforms. As the UK’s exit from the EU approaches, ensuring that our insolvency and restructuring regime remains world class will be vital to UK plc’s success.“

The proposals would give the Insolvency Service new powers to ban or fine directors, and follow a number of recent controversies such as the collapse of BHS and Carillion.

“R3 members have raised concerns for a long time that some directors are deliberately dissolving businesses to avoid paying their debts,” added Paul Barber, who is also a partner at Begbies Traynor. “The government’s announcement that it will look to disqualify such directors will be important in ensuring that directors are less likely to walk away from their responsibilities.

“However R3 would also urge the government to consider how it can work with our profession and make better use of existing powers to tackle wrongdoing. Over the past few years, the number of directors disqualified annually has hovered around 1,200, yet R3’s members find that many cases of misbehavior they report to the Insolvency Service are not followed up. We also want greater coordination between government bodies such as HMRC and the Insolvency Service to identify misconduct in a more timely fashion.”

The proposals represent a success for R3’s campaign for a short business rescue moratorium. This would provide a 28-day ‘breathing space’ to allow businesses in distress to put in place a plan to deal with debts and try to avoid insolvency. R3 has also welcomed plans for a new restructuring tool which it believes should help to rescue viable businesses and save jobs.

However, the organization has sounded a note of caution on the plans to reform corporate governance and raise standards. Paul Barber explained: “R3 welcomes measures that will improve transparency and trust in corporate governance and tackle rogue directors. However, a balance must be struck between ensuring directors are held to account, and giving distressed businesses the chance to be restructured. Measures that focus more on the former will only discourage entrepreneurship and damage the UK’s reputation as one of the most attractive places to do business.

“We look forward to working with the government to move these proposals forward once we have seen the full detail, thereby helping to strengthen the UK’s world-class corporate insolvency and restructuring framework.”