The Serious Fraud Office had already dismissed the idea of criminal charges against the four, and the four men have continued to deny any wrong-doing. So after what the Department of Business, Innovation and Skills describes as a ‘lengthy and complex investigation’ into the company’s collapse, they’ve got away with a much gentler punishment – basically a ban from something they apparently had no intention of doing anyway (and can certainly afford not to do, with that £42m in the bank). So it may not come as much consolation to the 6,000 staff who lost their jobs.
Interestingly, this is the same punishment a non-executive director might end up getting if they’re implicated in the demise of an insolvent company – since in that situation, a non-exec is saddled with the same degree of personal liability as an executive director. Now you might argue that this is another reason why non-exec positions are in danger of becoming more trouble than they’re worth. And that would be a shame, because cases like that of the Phoenix Four illustrate the importance of a management team being independently scrutinised.
The trouble is that insolvency is a fiendishly tricky thing to manage. Particularly for non-execs, who are one step removed from the day-to-day operation of the business, it’s hard to know if/ when to pull the plug. Do it too early, and you can end up ruining a salvageable business unnecessarily; but do it too late and they can end up being done for wrongful trading, the act of operating beyond the point where they should have known there was no reasonable prospect of avoiding liquidation. If they’re found guilty of this, they could be banned from future directorships.
‘Often the line between bad cash flow and insolvency can be hard to spot,’ says Tim Rutherford, a senior solicitor at IBB Solicitors. ‘But once that line has been crossed there is often no going back and, if the directors realise this too late, they incur personal liabilities.’
A non-exec role on average lands you about £60k a year. That’s not to be sniffed at, of course – but if we reach the point when the potential risks outweigh the rewards, fewer people will want to be non-execs and the quality of that external scrutiny will diminish. And as the Phoenix Four case shows, that would be dangerous.