Clampdown on directors ‘will hit UK tech mission’

Audit firm Grant Thornton is being sued for £200m by liquidators of cake seller Patisserie Valerie, which collapsed in 2019 following a major accounting scandal

Credit: AFP

The plans could see veteran entrepreneurs shy away from taking roles on the boards of fledgling businesses in case those appointments see them held personally liable for any issues with business filings.

“If it puts off directors and investors from being involved in UK companies then it’s very bad,” said Charles Delingpole, the chief of ComplyAdvantage.

The reforms “will do a lot more harm than good,” said Dominic Wheatley, a video games entrepreneur and chief executive of Catalis Group. “It will have the unintended consequence of putting off men and women whose advice could be very useful and replacing them with people who are useless.”

The UK has for years been an attractive location for European businesses to register their controlling entities due to clear accounting and audit rules. 

Ministers are also hoping to attract even more fast-growing tech companies to the UK by reforming the listings regime to reduce red tape.

The British cybersecurity company Darktrace is among large tech firms that are targeting London listings, reportedly lining up a float next year valued at a possible £3.8bn.

However, other UK start-ups such as FarFetch, the online fashion retailer, have picked the US, and London has generally lagged behind. 

Making start-up founders personally liable for any errors in their accounts could deter entrepreneurs from starting their businesses in the UK, potentially causing them to incorporate in rival European tech hubs.

“If you’re looking at two countries and you’re thinking I’m going to be personally liable as a start-up founder, then that’s obviously going to have a negative impact,” said Reece Chowdhry, an early stage start-up investor at RLC Ventures.

If such audit reforms are introduced, British start-up entrepreneurs are likely to restructure their companies to eliminate the process of holding board votes, instead polling shareholders.

“You can structure around it and I suspect if it does come down to it then people will just not take board seats and structure important decisions around shareholder votes,” Mr Kniaz said.

A Government spokesman said: “Strengthening our corporate governance and audit regime will help to ensure that the UK remains a world leader in corporate transparency and advance its status as a place of the highest standards in audit.

“The new Business Secretary has been clear that audit reform is a priority for the department and we will publish comprehensive proposals shortly.”

Liam Halligan: Audit reforms must not hurt free enterprise