BusinessCompany NewsLabour under fire over liability

Labour under fire over liability

The government has been accused of abandoning the 150-year-old principle of limited liability in a 'draconian' move that could have profound implications for companies.

Link: Government to snub small businesses

Turnaround professionals and the Tories have accused Labour of imperilling the rule that owners of a limited company cannot be made to meet the debts where they exceed its assets.

According to the society of turnaround professionals (STP), the pension bill makes shareholders – such as parent companies and venture capital investors – liable to contribute over and above their share value to make good a pension fund deficit.

For directors, it could even mean the loss of all their own and their families’ personal assets, they warned.

John Harris, chief executive of the STP, said: ‘The liability can fall on a director, his spouse, or relations. It’s draconian in its interpretation.’

The STP said so-called moral hazard clauses, designed to prevent companies passing off pension liabilities onto the pension protection fund, would erode limited liability. ‘Such a course could fundamentally distort the working of the markets,’ it said.

The STP said companies will suffer a double whammy because of ‘very demanding’ rules in the bill for evaluating deficits, which have to appear on balance sheets under FRS17.

David Willetts, the shadow work and pensions secretary has said ‘abandoning’ limited liability will have ‘profound’ implications. But the government said only those trying to dodge obligations have anything to fear.

The row erupted just as Andrew Smith resigned as pensions secretary. Patricia Hewitt, one of those tipped to replace him, coincidentally made a statement on director and auditor liability this week. It was ‘essential’ that high-quality people be willing to become directors, she said.

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