One more chance for disqualified directors

One more chance for disqualified directors

The government is right to crack down on directors of shell companies with no apparent operational business. Illegality must be penalised. Reportedly, directors of the two lakh-odd shell companies — that have been struck off by the Registrar of Companies — will also be barred from taking similar board positions elsewhere or getting reappointed. This is in line with regulation. However, there could be a spate of disputes if many disqualified directors also run legitimate businesses. That is avoidable. The government has now hinted at making a rule to address the appeals of disqualified directors. This is pragmatic.

These directors can be given one more chance, forewarned that there is no room for future errant conduct.

Shell companies that have been struck off from the Registrar of Companies include ones that have not filed tax returns for three or more years. Default, by design, and under the watch of independent directors is unacceptable. However, the notion that all shell companies have a nefarious intent is misplaced. Some of these companies could also be set up for legitimate purposes such as to hold stock or intangible assets of another business entity or to aid domestic and cross-border asset transfers and corporate mergers.

Enforcement agencies must separate the wheat from the chaff. Investigation must be completed swiftly to ensure that legitimate businesses are spared.

Directors of companies must have impeccable integrity. They must act as watchdogs for companies to uphold corporate governance and protect interests of all shareholders. In tandem, the government must also introduce a unique legal identifier for every corporate entity and make it mandatory for each one to disclose its beneficial owner. The reform will kill shell companies that anonymise undesirable transactions.