Director Disqualification Update - May 2021

  • Director Disqualification

On 12 May 2021 the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (“the Bill”) had its first reading in the House of Commons and has now been published. 

This will be an interesting addition to the disqualification regime. The main changes to the Company Directors Disqualification Act 1986 (“the Act”) will be as follows:

Section 6

Section 6 of the Act provides, insofar as is material, that:

''The court shall make a disqualification order against a person in any case where, on an application under this section, it is satisfied—

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of one or more other companies) makes him unfit to be concerned in the management of a company.''

Principally, the Bill will amend this provision to apply the above test to a director of an insolvent company or a former director of a company which was dissolved without becoming insolvent. The court will therefore be under a duty to make a disqualification order against an unfit director of an insolvent company or a former director of a company which was dissolved without becoming insolvent. In practice, this will widen the scope of directors caught under the disqualification regime.

Section 7 (2)

Section 7 (2) of the Act provides, insofar as is material that:

''Except with the leave of the court, an application for the making under section 6 of the Act for a disqualification order against any person shall not be made after the end of the period of 3 years from the day on which the company became insolvent.''

The Bill will extend this section to an application for a disqualification order in respect of a former director of a dissolved company. This means that an application for a disqualification order in respect of a former director of a dissolved company must be made within three years of the date the company was dissolved.

Section 7 (4)

Section 7(4) of the Act provides, insofar as is material that:

''The Secretary of State or the official receiver may require any person:

(a) to furnish him with such information with respect to that person's or another person's conduct as a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), and

(b) to produce and permit inspection of such books, papers and other records as are considered by the Secretary of State or (as the case may be) the official receiver to be relevant to that person's or another person's conduct as a director

as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of his under this section.''

The Bill will amend this section to extend the Secretary of State or Official Receiver’s powers as above to information and/or documentation relating to the conduct of a former director of a dissolved company. The reasonableness requirement shall remain.

Section 15A

Section 15A of the Act provides, insofar as is relevant:

''The court may make a compensation order against a person on the application of the Secretary of State if the following conditions are met:

(a) the person is subject to a disqualification order or disqualification undertaking, and

(b) conduct for which the person is subject to the order or undertaking has caused loss to one or more creditors of an insolvent company of which the person has at any time been a director.''

This section will be amended so that a compensation order may also be made against a former director of a dissolved company where he is subject to a disqualification order or a disqualification undertaking and his conduct has caused a loss to creditors.

 

If you require advice in relation to a director disqualification matter, please contact our specialist team today at ac@summitlawllp.co.uk, jb@summitlawllp.co.uk or 020 7467 3980.

Article Author

Alice Court

Alice Court

Solicitor