A shake-up to UK directors rules could lead Britain towards Swiss-style regulations that could limit funding to some of the country’s most promising start-ups.
In Switzerland, company directors can be financially liable to shareholders and creditors in a bankruptcy if they are found guilty of negligence.
Under similar rule changes being considered by Kwasi Kwarteng, the new business secretary, directors in the UK will be made personally liable for company financial statements. They will face fines and temporary bans if they fail to uphold reporting standards.
But one director and investor warned ministers away from pushing greater liabilities onto directors, adding that such rules have already held back investment in Swiss companies.
Rob Kniaz, a partner at Hoxton ventures, said: “If you were on a Swiss board and the company went bankrupt, you had personal liability. As an investor you simply would not take that risk.”
"It’s a big concern. Given that the venture model is almost always predicated on taking board seats, it’s not good."
Under Switzerland’s long-standing business code, rules state members of their boards are “liable to both the company and to individual shareholders and creditors” during liquidation, as a result of negligence.
Kniaz added some fund managers advised him against taking board seats on Swiss firms due to concerns over the legislation. There are concerns the UK’s new rules could hamper investment in UK start-ups due to the added risk of taking a board seat.
Daniel Jenny, a partner at the law firm CMS in Switzerland, said: “Once a company goes bankrupt, then the creditors through the administrators are able to sue.”
Mr Jenny pointed out that there were similar laws in other countries, but added that after bankruptcies claims against directors happen “quite often”. Companies in financial distress are required to keep stakeholders closely informed of changes in liabilities so as to avoid claims.
The most notable recent case of Swiss bankruptcy law in full force saw 29 former directors at Swissair agreeing to pay $3.1m as part of a settlement — after 20 years of court disputes — over the liquidation and restructuring of several companies.
However, Switzerland has been attractive to some financial firms due to its rules around financial secrecy, that allow banks a form of client confidentiality — along with numbered bank accounts and cryptography — that can prevent investigation of bank accounts except under criminal circumstances.
A white paper on Britain’s planned policy changes is expected as soon as next week
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