ML Covered - February 2026

We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

Government scraps Audit Reform Bill

On 20 January 2026, the Government announced that they were scrapping the Audit and Corporate Governance Reform Bill. The decision was revealed by the Department for Business and Trade in an announcement about investment in UK tech sectors and their next steps in cutting red tape.

The Bill had been intended as landmark legislation to enhance the accountability of directors for incorrect financial reporting. It would have overhauled the regulation of audit and corporate reporting and created a new definition of public interest entity. At the opening of Parliament in 2024, King Charles III stated that it is "important that all directors in the UK’s most significant companies face consequences if they neglect their duties in respect of financial reporting, so the bill will allow for this.”

The draft legislation would have replaced the Financial Reporting Council with a new regulator, namely the Audit, Reporting and Governance Authority. The new regulator would have had a wider remit as well as greater investigatory and enforcement powers. Directors can only be held accountable for making incorrect financial statements if they are members of an accountancy body. The Bill would have given the new regulator statutory powers to investigate concerns over the accuracy of financial reporting and sanction directors for neglect or breaches of their duties.

The Department for Business and Trade has confirmed that instead of the Audit Reform Bill, they are pressing ahead with modernising corporate reporting to reduce unnecessary burdens.

Key Takeaways

The Audit Reform Bill, had it been introduced, would have significantly reinforced the duty on directors to exercise reasonable care, skill and diligence. However, even without the introduction of the Bill, directors remain under intense regulatory, and reputational pressure to raise standards in respect to audits, with expectations with regard to documentation and governance being likely to continue to rise. Directors should therefore be mindful of their obligations in respect of audits and corporate governance.

To read more, please click here.

Insolvency Service publishes its 2025 insolvency statistics

On 20 January 2026, the Insolvency Service has published its Company Insolvency Statistics for December 2025, providing a picture for insolvencies for the entirety of the 2025 calendar year.

In 2025, there were 23,938 registered company insolvencies. These comprised 18,525 creditors’ voluntary liquidations, 3,730 compulsory liquidations, 1,495 administrations, 186 company voluntary arrangements and two receivership appointments.

The total number of company insolvencies in 2025 was similar to 2024 numbers, and 5% lower than in 2023, which saw the highest annual number since 1993. However, the 2025 corporate insolvencies are still roughly 70% higher than the total number of company insolvencies in 2021. Although the overall 2025 insolvency numbers are largely similar to those of the previous year, the total number of insolvencies in December 2025 were 10% lower than in November 2025 and 13% lower than December 2024.

Looking at industries that were most affected, 17% of the total company insolvencies in 2025 were in the construction sector. Wholesale and retail trade, specifically the repair of motor vehicles and motorcycles represented 16% of recorded insolvencies. Companies providing accommodation and food services represented 14% of all recorded company insolvencies.

Key Takeaways

The number of corporate insolvencies reached a 30 year high in 2023 and has remained high across 2024 and 2025. The high-level of company insolvencies places continued focus on the role of directors in managing the potentially competing interests of their duties owed to the company and the company's creditors, particularly as there are a growing number of claims being brought against former directors of insolvent companies. Where a company is insolvent or bordering on insolvency, but is not faced with an inevitable insolvent liquidation or administration, Directors need to be mindful of their fiduciary duty to act in the company’s interests and to reflect the fact that both shareholders and creditors have an interest in the company’s affairs.

To read more, please click here.

Single sex case updates

Following the Supreme Court’s decision in For Women Scotland Ltd v Scottish Ministers, which held that ‘sex’ for the purposes of the Equality Act 2010 (EQA) means biological sex, the employment law community has been watching to see how tribunals apply that reasoning in practice. We summarise three decisions and highlight key takeaways.

Kelly v Leonardo UK Ltd ETS/8001497/24

Ms Kelly brought claims of direct sex discrimination, indirect sex discrimination and harassment related to sex against her employer, challenging a policy that access to toilet facilities was based on asserted gender identity rather than biological sex.

She submitted a formal grievance, stating that employees wanted access to single‑sex toilets and that, for women, allowing transgender employees to use female toilets raised safety and dignity concerns. The grievance was not upheld, the employer taking the view that it could not refuse access to toilets on the grounds of affirmed gender.

Decision

The tribunal dismissed all of Ms Kelly's claims. In doing so they considered the application of the Supreme Court's decision to the Workplace (Health, Safety and Welfare) Regulations 1992 (WHSW), which require separate toilet facilities for women and men. The tribunal found that this duty did not require the employer to define men or women by biology or by a gender affirmed approach, and that providing a sufficient number of toilets was enough to comply.

Sandie Peggie v Fife Health Board and another

Mrs Peggie brought claims of direct discrimination, indirect discrimination, harassment (including sexual) and victimisation against her employer and Dr Upton (a transgender woman), arising from Dr Upton's use of a female designated changing area at work.

Decision

The tribunal upheld Mrs Peggie’s harassment claim against her employer, finding that it had:

• not revoked Dr Upton’s permission to use the changing room on a temporary basis to avoid encounters between the two individuals whilst a solution was found.
• taken an unreasonable amount of time to investigate the allegations.
• informed Mrs Peggie that she was not allowed to discuss the case.

In making the decision, the tribunal had specific regard to the Supreme Court case in that it concluded that the decision does not make it unlawful for a trans female to be given permission to use a female changing room at work, but that having a protected characteristic of gender reassignment did not mean that permission to use that space was itself actually lawful.

The original permission to allow Dr Upton to use the space was lawful, however, once a complaint had been made by Mrs Peggie it became unlawful and should have been revoked until a solution was found.

Hutchinson and others v County Durham and Darlington NHS Foundation Trust

The Trust operated a policy allowing transitioning employees to use changing rooms that aligned with the gender they identified with.  A trans woman followed the policy and used the female changing rooms.  Ms Hutchinson, and additional female employees who also used the changing rooms, raised concerns about the Trust's policy.  However, the Trust refused to amend its policies. The female employees brought claims for discrimination.

Decision

The tribunal confirmed that a trans woman was deemed to be a biological man following the Supreme Court's decision.  As a result, the Trust's policy of allowing a biological male trans woman, notwithstanding the objections of female members of staff, amounted to harassment.  Additionally, the Trust's policy also amounted to indirect sex discrimination, which the Trust could not objectively justify.

What this means for employers and insurers

Employers must take care when it comes to making decisions about how single sex spaces are used and must properly and promptly investigate any complaints made by employees, regardless of whether they in principle disagree with the employee's point of view.  This continues to be a developing area in the law following the Supreme Court's decision which will likely result in more cases being tested in the tribunals. 

Government drops independent review of Pensions Ombudsman

The Government has recently abandoned its plans to carry out a review into the Pensions Ombudsman (POS), despite concerns raised by MPs relating to the Atomic Energy Agency Technology ("AEAT") pension scandal.

In a letter published by the Work and Pensions Committee on 14 January 2026, Secretary of State for the Department for Work and Pensions, Pat McFadden, said the Department will not be taking forward the independent review, which was initiated by the previous administration.

The decision reverses a 2023 commitment to examine the POS's time‑limitation rules, which can bar redress for complaints more than 15 years old. This is a constraint which has drawn criticism where loss only emerges long after the events in question and creates "gaps in the routes of appeal".

In June 2023, the Public Accounts Committee reported that thousands of former AEAT employees had lost out financially following the company's privatisation in 1996. About 90% of its 4,000 staff moved from a government‑backed Civil Service pension to a new private scheme. When AEA Technology collapsed in 2012, those members were transferred into the Pension Protection Fund (PPF), and under the PPF’s rules at the time, pension benefits built up before 1997 did not receive annual inflation increases.

McFadden acknowledged concerns about appeal routes for pension complaints, saying the AEAT issues had been addressed, and that future problems are best dealt with as they arise. This will be welcome news for pensions professionals; the limitation rules allow pensions professionals to draw a line under past issues and move on, without the constant threat of historic issues emerging. Any widespread changes made following an examination of the time-limitation rules could open the floodgates for historic issues.

Pension Ombudsman: Recovery of Overpayments

In the case of CAS-89142-L1R8, the Pensions Ombudsman (POS) gave its determination concerning a trustee's decision to recover a winding-up lump sum that was paid after the member's death, in a situation where the lump sum had already been spent in good faith on funeral expenses.

In December 2020, the trustee offered the member the option to exchange his accrued benefits for a one-off winding-up lump sum before completing a buyout, with the intention of eventually winding up the scheme. The member accepted the offer and was informed that his final monthly pension payment would be made in April 2021, and the lump sum would be made in May 2021.

However, unbeknownst to the trustee, the member had died in March 2021, with the payments being scheduled to be made thereafter, in April and May 2021.

After the payments had been made, and the trustee became aware of the member's death, they wrote to the deceased's family seeking to recover the overpayment. The member's son challenged this recovery, arguing that the lump sum payment was an irrevocable offer and formed part of a contractual agreement with the scheme.

The Ombudsman ultimately dismissed the complaint and held that legislative provisions governing payment of winding-up lump sums did not permit payment of such a sum after a member's death. Reference was made to s166(1) of the Finance Act 2004, which states that a winding-up lump sum under "the lump sum rule" could only be paid to an active, deferred, or pensioner member. As such, this entitlement ceased upon the member's death.

The Ombudsman held that, as the complainant had no valid defence against recovery of the overpayment, the trustee was entitled to recover it from the deceased member's estate. This was in spite of the fact that the lump sum had already been spent in good faith on funeral expenses, as the Ombudsman found there was no financial detriment given these expenses would have been settled by the estate in any event.

The Pensions Regulator considers revised collective defined contribution code

The Pensions Regulator (TPR) has released a consultation for the revised collective defined contribution (CDC) code.

CDC Schemes (introduced in 2021 by the Pension Schemes Act 2021) allow for both the employer and employee to pay into a collective fund. The CDC scheme then pays its members an income for life. Currently CDC schemes are only available for single employers, but the government intends to allow for multi-employer CDCs from July 2026.

The revised code sets out TPR's expectations for multi-employer CDC schemes and how it intends to use its powers to support the changes.

No changes to auto-enrolment thresholds

The DWP has completed its annual statutory review of the automatic-enrolment thresholds and has concluded that the thresholds for 2026/27 will be maintained at their 2025/26 levels. That is:

• The automatic enrolment earnings trigger will remain at £10,000.
• The lower earnings limit of the qualifying earnings band will remain at £6,240.
• The upper earnings limit of the qualifying earnings band will remain at £50,270.

This is despite the ongoing concerns regarding pensions inadequacy and under saving for retirement, however, this remains the focus of the Pensions Commission which is exploring the long-term questions of adequacy.