Corporate Governance / Regulatory Compliance  |  7 min read  |  Raayzel Business Consulting

The coming reform of UK director accountability: what CFOs and boards need to understand now

The UK Insolvency Service published its Corporate Civil Enforcement Reforms consultation on 25 March 2026. It closed on 22 June 2026 and the government’s response is pending. When it arrives, it will mark the most comprehensive overhaul of director accountability in four decades. The proposals, if implemented in anything close to their current form, will fundamentally change the risk environment that CFOs, Finance Directors, and Board Directors operate in, not only when companies fail but across the full lifecycle of live, trading organisations.

Most directors are not aware of the extent of what is being proposed. The consultation has received significant attention from legal practitioners and insolvency professionals. It has not yet penetrated the governance and compliance conversations happening at board and executive level in the organisations these proposals will most affect. That gap needs to close before the government’s response arrives and the legislative process begins.

This article examines what the proposed reforms actually involve, why they represent a material shift in the accountability environment for sitting directors and senior executives, and what boards and CFOs need to think about now in anticipation of a regime that is coming in one form or another.

What the current regime looks like and why it is being reformed

The current corporate civil enforcement framework has been in place for nearly forty years. At its core are the director disqualification regime under the Company Directors Disqualification Act 1986 and the power to wind up companies in the public interest. The Insolvency Service administers both, and the framework has historically been focused primarily on insolvency-related misconduct: directors of companies that have failed, where creditors have suffered losses, and where the conduct of the directors in the period before failure is examined.

The statistics for 2025 to 2026 illustrate the current scale of enforcement activity. The Insolvency Service recorded 1,158 director disqualifications in the year, with an average disqualification period of 8.1 years. It targeted 2,235 companies for civil investigation, 199 cases for criminal investigation, and 273 companies for live company investigation under its enhanced powers. At the end of March 2026, there were 1,177 company cases under civil disqualification investigation, 197 cases under criminal investigation, and 59 live companies under investigation.

The criticism that has driven the reform agenda is that despite these numbers, the framework is not operating at sufficient scale relative to the level of corporate misconduct in the UK economy. The Insolvency Service’s own five-year Investigations and Enforcement Strategy 2026 to 2031, published in July 2025, sets out a vision for deploying enforcement powers across a broader and more diverse set of scenarios than ever before, reaching beyond the traditional remit of insolvency-related misconduct. The consultation translates that strategic ambition into specific legislative proposals.

The proposals that will most affect sitting directors

The consultation contains eleven specific proposals across three strands: structural reform, improved information-gathering powers, and procedural changes. Not all of them are equally significant for sitting directors of live, trading companies. The following are the proposals with the most direct governance implications for Raayzel’s ICP.

The director restrictions regime is the most significant structural innovation in the consultation. Currently, the primary sanction available to the Insolvency Service is director disqualification, a binary outcome that prevents a director from acting in that capacity for a defined period. The proposed restrictions regime introduces a new intermediate sanction for lower-level misconduct, including negligence and incompetence, that falls short of the conduct warranting full disqualification.

Under the restrictions regime, a director could be subject to restrictions for a fixed period of three years. They would be able to continue acting as a director but would be prevented from being a sole director or sole signatory on a bank account. The restrictions could be imposed for conduct that would not previously have resulted in any formal sanction under the disqualification regime. The specific examples cited in the consultation include late filing of annual accounts, which Companies House has already been prosecuting with increasing frequency: charges for late filing rose from 436 in 2021 to 2022 to 2,707 in 2024 to 2025, with a conviction rate of approximately 60 percent.

The implications for governance are significant. A restrictions regime targeting negligence and incompetence alongside more serious misconduct creates a formal enforcement pathway for conduct that is currently managed informally or addressed through regulatory action by other bodies. CFOs and Finance Directors whose organisations have had compliance failures, control weaknesses, or governance lapses that did not result in company failure will need to assess whether those failures create restrictions exposure under the proposed new regime.

The shift of decision-making from courts to the Insolvency Service

The second major structural proposal is the transfer of disqualification decision-making from the courts to the Insolvency Service itself. Currently, the Insolvency Service investigates and applies to court for a disqualification order. The court determines whether the test for disqualification is met. The proposed reform would see the Insolvency Service assume both the investigative and decision-making roles, with directors having a right of appeal to a tribunal rather than the court being the primary decision-maker.

This is the proposal that has generated the most significant concern among legal practitioners. The shift from court-based adjudication to an administrative decision-making model with tribunal appeals fundamentally changes the procedural protections available to directors facing disqualification. The court process, while slow and resource-intensive, provides substantial protections: the burden of proof rests on the Insolvency Service, the rules of evidence apply, and the director has the full benefit of adversarial legal proceedings before an independent judge.

Under the proposed model, the Insolvency Service would decide whether to impose a disqualification or restriction and the burden would shift to the director to challenge that decision through an appeal process. Several major law firms and the Freshfields analysis of the consultation noted the fairness concerns this raises, particularly for directors who may face disqualification or restriction as a consequence of decisions made in good faith under difficult circumstances.

For CFOs and Finance Directors specifically, this shift matters because the finance function is often the focus of the Insolvency Service’s investigations into corporate misconduct. Financial reporting failures, misrepresentation of financial position, and inadequate accounting systems are among the most common grounds for disqualification proceedings. The transfer of decision-making to the Insolvency Service means that the governance and controls environment within which the CFO operates is more directly exposed to administrative enforcement action than it has been under the court-based model.

Enhanced powers over live, solvent companies

The extension of the Insolvency Service’s information-gathering powers to live, solvent companies is the proposal with the most immediate practical significance for organisations that have not experienced financial difficulty. Under the current regime, the Insolvency Service’s investigative powers are primarily activated in the context of insolvent or dissolved companies. The proposed reforms would expand those powers to enable investigations into live companies where there is suspicion of serious misconduct.

The expanded powers would allow the Insolvency Service to require live companies and their directors to provide information, produce documents, and answer questions as part of an investigation, even where the company is trading normally and has not entered any formal insolvency process. This represents a significant expansion of the investigative environment that CFOs and boards operate in, and it connects the corporate civil enforcement regime to the broader landscape of regulatory scrutiny that already operates through the FCA, the FRC, HMRC, the CMA, and other bodies.

The practical implication for governance is that the combination of enhanced Insolvency Service powers, the expanded scope of the Section 250 regime under the Crime and Policing Act 2026, and the FRC’s revised Audit Enforcement Procedure creates a significantly more active enforcement environment for live, trading companies than existed twelve months ago. These regimes do not operate in isolation. An issue that comes to the attention of one enforcement body is increasingly likely to be visible to others, and the governance quality of the organisation will be assessed across multiple regulatory relationships simultaneously.

Extended limitation periods and their governance implications

The consultation proposes extending the limitation period for issuing disqualification proceedings in certain cases from three years to five years. This is a significant change for directors because it extends the window during which conduct can give rise to formal proceedings. Decisions made, controls approved, and governance failures that occurred up to five years ago would potentially remain within the scope of proceedings initiated after the reforms take effect.

The governance implication is both prospective and retrospective. Prospectively, it means that the quality of governance decisions made today will be assessed against a longer accountability window. Retrospectively, it means that directors whose organisations had control weaknesses, compliance failures, or governance lapses in the past several years should assess whether those issues create exposure under the extended limitation framework.

For CFOs and Finance Directors, this is particularly relevant in the context of the post-pandemic period, when many organisations operated under exceptional circumstances, made accelerated decisions, and experienced control environment weaknesses that were not addressed as promptly as they would have been in normal trading conditions. The extension of the limitation period means that the enforcement consequence of those decisions and weaknesses may not have expired in the way that directors have assumed.

The mandatory disqualification proposal

The consultation proposes mandatory disqualification for directors whose companies are wound up in the public interest, with a minimum disqualification period of five years. Currently, a public interest winding-up does not automatically result in director disqualification. The court determines whether disqualification is appropriate based on the circumstances.

Mandatory disqualification following a public interest winding-up removes that judicial discretion and creates an automatic consequence that boards and CFOs of organisations facing regulatory or government scrutiny need to factor into their governance approach. The circumstances in which a company might face a public interest winding-up include serious fraud, misuse of company assets, failure to file accounts, and other forms of misconduct that fall within the broad scope of the proposed expanded Insolvency Service remit.

For boards that have received, or might receive, regulatory correspondence from the Insolvency Service, the FCA, HMRC, or other enforcement bodies, the proposed mandatory disqualification consequence attached to public interest winding-up makes the governance response to that correspondence significantly more consequential than it has historically been.

The connection to the broader accountability landscape

The corporate civil enforcement reforms do not operate in isolation from the other significant regulatory developments affecting UK companies in 2026. They form part of a convergent accountability landscape that is simultaneously being shaped by Section 250 of the Crime and Policing Act 2026, Provision 29 of the UK Corporate Governance Code, the revised FRC Audit Enforcement Procedure, and the proposed Civil Regulatory Sanctions regime under the planned Corporate Reporting Authority.

The convergence is important because these regimes increasingly interact with each other. A control failure that gives rise to a Provision 29 disclosure concern may simultaneously attract FRC audit enforcement attention, Insolvency Service investigation powers under the expanded live company regime, and Section 250 criminal liability exposure. A financial reporting issue that the auditor discloses to the FRC under the revised Audit Enforcement Procedure may also come to the attention of the Insolvency Service. An issue that generates criminal liability for the company under Section 250 may generate personal civil enforcement consequences for the relevant senior managers under the proposed restrictions regime.

The governance architecture that boards and CFOs need to maintain is one that addresses this interconnected accountability landscape rather than treating each regime in isolation. That requires a view of the organisation’s governance quality that is comprehensive enough to identify where exposure exists across the full range of enforcement bodies that might be interested in it.

What boards and CFOs should be doing now

The consultation outcome is pending and the legislative timeline is uncertain. That does not mean the governance response should wait for legislative certainty. The direction of reform is clear, the Insolvency Service’s enforcement strategy signals increased activity regardless of whether the legislative proposals are implemented in full, and the current enforcement statistics demonstrate that director accountability is already an active and growing area of regulatory scrutiny.

• Director conduct review: boards should conduct an honest assessment of whether the conduct of any director or senior manager over the past five years creates potential exposure under the proposed extended limitation period and the broader grounds for disqualification or restriction that the reforms contemplate. This is not a legal audit. It is a governance exercise that requires the board to understand where conduct has fallen short of the standards the Insolvency Service will be assessing.
• Control environment assessment against enforcement risk: the CFO should assess the adequacy of the current control environment against the expanded enforcement criteria that the proposed reforms introduce. Areas of particular focus should include the completeness and timeliness of statutory filings, the quality of financial reporting systems and controls, the adequacy of anti-fraud procedures under the ECCTA failure to prevent regime, and the governance of live investigations or regulatory matters.
• Governance of regulatory correspondence: boards need a defined governance framework for responding to correspondence from the Insolvency Service, HMRC, the FCA, the FRC, Companies House, and other enforcement bodies. Under the current regime, such correspondence is sometimes treated as a routine administrative matter. Under the emerging enforcement landscape, any formal regulatory contact needs to be assessed for its potential interaction with the civil enforcement regime and managed accordingly.
• Board-level awareness of the enforcement landscape: the proposed reforms should be on the board agenda before the government’s response arrives. Directors who are not aware of the proposals, the enforcement statistics, and the direction of regulatory travel are not in a position to make informed governance decisions about the risks they are personally carrying and the governance investments the organisation needs to make.
• Connection to existing governance programmes: the corporate civil enforcement reforms need to be integrated with the organisation’s existing Provision 29 compliance programme, its Section 250 governance response, and its ECCTA failure to prevent fraud programme. These are not separate regulatory challenges. They form a connected accountability landscape that requires a connected governance response.

The governance question the proposed reforms are really asking

The Insolvency Service’s five-year strategy frames the reform agenda explicitly: the Service intends to play a more active role in upholding high corporate standards, deploying enforcement powers across a broader and more diverse set of scenarios than ever before, reaching beyond the traditional remit of insolvency-focused misconduct. That ambition predates and will outlast any specific legislative outcome from the current consultation.

The governance question the proposed reforms are really asking of directors, CFOs, and boards is one that the current accountability environment is already raising across multiple enforcement regimes: are the standards of governance, controls, and director conduct being maintained at a level that would withstand scrutiny from an enforcement body with expanded powers, extended limitation periods, and an explicit strategic objective to hold directors accountable across a broader range of conduct than has previously been enforced?

For most directors, the honest answer to that question requires more work than the answer they would currently give. The enforcement statistics demonstrate that the Insolvency Service is already active at significant scale. The proposed reforms are designed to make it more active, faster, and able to reach further into the governance of live, solvent companies than its current powers permit. The governance response to that trajectory does not require waiting for legislative outcomes. It requires treating director accountability as a live governance priority rather than a consequence of company failure.

Raayzel works with CFOs, Finance Directors, boards, and audit committee chairs to assess governance quality against the current and emerging accountability landscape, design control environments that address the converging enforcement regimes affecting UK organisations in 2026, and build the governance infrastructure that supports defensible director conduct across the full range of regulatory scrutiny that the reforms in progress are designed to increase. The work is advisory and execution-oriented, calibrated to the specific governance architecture and risk profile of each organisation.

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