Britain proposes stricter company payout rules after Carillion collapse
By Reuters20 July 2023
Britain has proposed tougher rules to force companies to show they can afford dividends and other payouts, drawing lessons from the collapse of builder Carillion in 2018.
The business and trade ministry said the draft rules announced on Wednesday (19 July) are expected to come into force at the start of 2025 and apply to companies with at least 750 employees and annual turnover of 750 million pounds ($966.5 million) or more.
“The new measures respond to lessons learned from major and sudden corporate collapses in recent years, including that of Carillion,” the ministry said.
A parliamentary report in May 2018 said Carillion’s accounts published just months before the company’s January collapse presented a “rosy picture”, enabling it to pay a record dividend of £79 million and award large bonuses to executives.
The company had liabilities of nearly £7 billion when it went bust and only £29 million in cash.
A subsequent government-backed review of the Financial Reporting Council, Britain’s auditing regulator, in December 2018 recommended several steps that are now reflected in the ministry’s proposals.
Companies would have to disclose a minimum figure for accumulated realised profits and policy on the amounts and timing of payouts. They would also have to describe actions being taken by directors to detect and prevent major fraud.
Boards would have to publish an annual “resilience” statement showing risks to the business over the short, medium and long term, and how they are being addressed, the ministry said.
Companies would have to explain why they are confident about the quality and reliability of their corporate reporting beyond financial statements, which must be externally audited.
“This new requirement responds to investor and wider stakeholder interest in non-financial reporting within the annual accounts and reports, including on strategy, governance, risk and matters related to sustainability and climate change,” the ministry said.