'Dodgy directors': Tougher sanctions could see them paying compensation

The Government is to introduce a law imposing tougher penalties on “rogue and reckless” company directors that could see them paying compensation to victims.

The proposal is to be written in to the Queen’s Speech to push legislation through Parliament before next year’s general election. It will allow the Government to order the courts to force a disqualified director who ripped off investors to compensate victims.

Vince Cable, the Business Secretary, has been behind the push for stronger deterrents and tougher sanctions for those who flout the law.

His moves are aimed at reducing scams including those targeting the “grey market” – for example, persuading pensioners to invest in wine companies, which have seen £80m lost by savers. Another scam is landbanking, in which people are sold plots of land they are told will greatly increase in value, but later discover that planning permission was never likely to be granted. Some 111 companies have been wound up since 2007 and 34 directors disqualified for this ruse.

Rogue businessmen have also exploited the “carbon credits” system for business, by selling credits to people who find that they cannot sell them on to big companies as they were promised. Almost £30m has been taken from investors in this way since 2012. Mr Cable, who promised a crackdown on “dodgy directors” at the Liberal Democrat conference last September and has now drawn up the necessary legislation, said: “The vast majority of directors in this country run their businesses in the right way. But some people have suffered unnecessary losses as a result of rogue behaviour. Rogue directors can cause a huge amount of harm in terms of large financial losses, unnecessary redundancies and lifelong investments going down the drain. It is only right that we put the toughest possible sanctions in place, make sure we stamp out unfair practices and deter those who are looking to act dishonestly.”

Foreign businessmen convicted of an offence abroad could be barred from being a director in the UK. Judges will have a duty to take account of a wider range of issues when deciding whether to ban a director, such as previous business failures and losses, overseas conduct and breaches of specific laws.

About 1,200 directors are already banned each year for between two and 15 years.

The Confederation of British Industry and the Institute of Directors welcomed Mr Cable’s proposals. But R3, the trade body for insolvency professionals, said the Government’s record on disqualifying directors did not match its rhetoric.