A More Punitive Regime for Delinquent Directors

A More Punitive Regime for Delinquent Directors

On 26 March 2015 the Deregulation Bill and the Small Business, Enterprise and Employment Bill were enacted. The measures in the new Acts will be phased in over the next 12 months.

According to the Government, the Deregulation Bill “will introduce measures to modernise and strengthen the director disqualification regime to give the business community and consumers greater confidence that wrongdoers will be barred as directors. This will lead to an increase in confidence in the director disqualification regime, greater transparency of the conditions that can lead to disqualification and more opportunities for creditors who have suffered from director misconduct to receive compensation.”

An insolvency practitioner acting as Liquidator or Administrator is currently required to submit a report to the Secretary of State on the conduct of the insolvent company’s directors within 6 months of the date of insolvency.

The new Acts will, from April 2016, bring in a new process of reporting by insolvency practitioners under the Company Directors Disqualification Act 1986, and significant further changes will be made to the disqualification regime. The new proposals will require a report within 3 months, instead of the current 6, to maximise the opportunity for successful disqualification proceedings. Similarly, the time limit for bringing proceedings after insolvency will increase from 2 years to 3. Perhaps to counter the risk that the requirement to report earlier will result in fewer adverse conduct reports due to lack of information and evidence, practitioners will be required to report on the suspicion of director misconduct, rather than on their evidenced belief under the current regime.

Increased powers will be given to the Secretary of State or the Official Receiver to request information relevant to a person’s conduct as a director of an insolvent company from any person, whereas currently, information and records can only be requested from insolvency office-holders, causing an administrative burden on Liquidators and Administrators, whose time is at a premium, and leading to unacceptable delays in disqualification proceedings.

Additionally, powers will be given to Administrators to bring wrongful and fraudulent trading claims which are currently only available to Liquidators, and office-holders will be allowed to assign claims that currently only they can pursue to a third party. Liquidators will be able to exercise certain statutory powers, particularly in relation to issuing legal proceedings, without requiring the sanction of creditors.

Finally, the courts will have the power to order directors to pay compensation to the victims of their misconduct, where their poor conduct has resulted in a quantifiable loss.

Overall, the effect of these changes is to make the remedies against dishonest and delinquent directors more extensive, more readily available, and more punitive.

 

Deregulation Bill & Small Business, Enterprise and Employment Bill – Summary of Changes…

  • Director conduct reports within 3 months.
  • 3 Year time limit for bringing proceedings.
  • IP’s can report their suspicions.
  • More powers to the Secretary of State & the Official Receiver to request information.
  • Administrators will be able to bring Wrongful & Fraudulent Trading claims.
  • Office holders will be able to assign claims.
  • Liquidators can exercise certain statutory powers (such as sanction).
  • Courts will be given the power to order directors to pay compensation to victims of misconduct.

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