The corporate veil should be a privilege, not a right

Nicole Southwell, Director at Shenfield-based insolvency practitioners, Bretts Business Recovery, argues that the Government should do more to ensure those who enjoy the protection of the corporate veil are suitably qualified to do so.

In my job, I see more than my fair share of businesses hitting the buffers and it’s always a painful experience for all concerned.

The pain is matched, though, by the frustration of feeling that so much of the suffering could be avoided if a different stance was taken to the protection afforded by what is known as the corporate veil.

I find it amazing that anyone can open and run a limited company and enjoy the many levels of protection such a company offers by way of this corporate veil, yet no minimum standard of education or minimum qualification level is required to become a company director in the first place.

While no one would suggest dampening the spirits of a young entrepreneur, perhaps the Government would be better developing some sort of vetting or education process to ensure an individual understands what their fiduciary duty is before being granted limited status. Perhaps insisting that companies engage a qualified accountant from day one might be a good starting point. Presently, a business can run for more than a year without producing any figures.

Small businesses play an important part in this country’s economy, so the Government should be helping them at the start of their company journey, making sure they set-up and incorporate appropriately in the first place whilst having the right tools to succeed.

The Government certainly plays a role in how companies in trouble are dealt with. I’d like it to show similar enthusiasm for helping prevent the trouble in the first place.

Insolvency processes are reviewed periodically and changes to statute are made affecting how insolvency practitioners do their job. Insolvency practitioners are often seen as the bad guys when a business is in trouble, but do they really deserve their reputation as the Grim Reaper of business? The dark shadow of business failure falls firmly on the insolvency practitioners when they are actually the ones trying to point towards the light.

A lot has been done to change perceptions, with firms opting to be called business recovery or turnaround specialists but there is substance behind these name changes. The role of an insolvency practitioner is of one of help and guidance, there to minimise the impact of a business in trouble. Their aim is always to try to help a director out of financial difficulty but this is not always possible because they come to us when it is too late. They wait until there is too much creditor pressure and loss of faith from suppliers, no cash to work with or simply when there is too much pressure and stress.

Directors recognising earlier they need help combined with an adoption of minimum standards of capability at the time a company registers could see the Grim Reaper analogy fade and, more importantly, give directors a fighting chance to cast aside the old man with the scythe.

 

First published in Business Time in Essex