'It is an alarming fact that one in four directors of currently active companies has been involved with a company which has failed in the past six years,' Lord Alexander said.
Legislation should 'place the onus on a director of a failed company to obtain permission before becoming the director of another company'.
A spokesman for the IoD said that less regulation, not more, was needed for company directors. 'The UK is among the most heavily regulated in the world,' he said. 'They already have 750 statutes governing their day-to-day life.'
NatWest is the leading lender to small businesses, with roughly a third of the market, and has shared in the criticism heaped on banks for their perceived lack of support to businesses during the recession.
Lord Alexander told the Insolvency Lawyers Association in London: 'Many mundane activities require some form of training or licensing. But almost anyone can claim the privilege of limited liability.'
In the five years to 1993 liquidators of companies reported that directors had been 'unfit' in 28,000 cases involving 43,000 directors, he said. Yet the Department of Trade an Industry had disqualified only 1,712 individuals.
A recent Public Accounts Committee report showed that nearly three-quarters of liquidators thought legislation was unsuccessful in putting unfit directors out of action.
'Four-fifths of owner-managers have received no business or management training,' he said. 'Perhaps a more widespread system of management training, leading to accreditation, which could be taken into account in risk assessment, would be beneficial to both businesses and banks.'
The IoD rejected Lord Alexander's call for more regulation, but agreed that the disqualification process had become 'something of a lottery'. 'It is not the law that is at fault, but the administration of the law,' it said.
The IoD, the Chambers of Commerce and the Confederation of British Industry all agreed on the need for greater training for small businesses.
The Chambers warned: 'We should not be striving to put more obstacles in the way of the entrepreneur, nor should we penalise failure.'
The CBI did support Lord Alexander on the problem of 'phoenix' companies, where directors put firms into voluntary liquidation and immediately re- start the business in a new name, leaving creditors unpaid.
'There must be more vigorous enforcement by the regulatory authorities against directors of insolvent companies so that they cannot continue to trade without paying their previous liabilities,' the CBI said.
View From City Road, page 41 (Photograph omitted)Reuse content