Recent statistical information
from the Department of Trade & Industry
("DTI") shows that there is
an increase in the number of proceedings
commenced for the disqualification of
Directors. In the year to 31st March 1999,
the Courts made 1,284 Disqualification
Orders, which was an increase on the previous
year, and notwithstanding the fact that
there was a reduction in the number of
company failures.
The disqualification of
persons from acting as Directors of companies
was introduced by the Company Directors
Disqualification Act 1986 ("the Act").
The Act divides disqualification
into the following categories: -
Disqualification
for General Misconduct in Connection with
Companies
Offences
in this category include disqualification
on conviction of an indictable offence,
disqualification for persistent breaches
of company legislation, disqualification
for fraud etc in a winding up and disqualification
on summary conviction.
Disqualification
for Unfitness
Offences
in this category include persistent breaches
of company legislation, failure to file
Accounts or Annual Returns on time, failure
to keep proper books and records, misappropriation
of funds, extent to which a Director is
responsible for a company's failure, committing
an act of Preference (paying one or more
creditors without paying all), Transfers
at an Undervalue (transferring assets
of the Company at less than full consideration)
etc or failure to co-operate with the
Liquidator/Official Receiver in a liquidation.
Other
Cases of Disqualification
These include
committing an act of Wrongful Trading
or Fraudulent Trading, undischarged bankrupts
and a failure to pay under a County Court
Administration Order.
Disqualification proceedings
are brought by the DTI, generally following
reports provided by Liquidators, Receivers
or Insolvency Practitioners.
Under the Act, the minimum
period of disqualification is 2 years
with a maximum of 15 years. As a result
of a Disqualification Order, Directors
are disqualified from acting as Directors
or being involved in the promotion, formation
or management of a company.
Any person acting in breach
of an Order is liable to a fine or imprisonment
for up to 2 Years, or both. It is important
to note that simply being a Director of
a company, which becomes insolvent, is
not in itself sufficient to justify disqualification
proceedings
It is generally necessary
to have acted intentionally, recklessly
or negligently in committing one or more
of the various acts of misconduct or misdemeanours
listed above.
Note that notwithstanding
a Disqualification Order, Section 17 of
the Act permits a person subject to a
Disqualification Order to apply to the
Court for leave to continue to act in
the promotion, formation or management
of a Company.
It should be noted that
under Section 15 of the Act, any person
who acts in contravention of a Disqualification
Order will be personally liable for all
the relevant debts of a company. This
is in addition to the possibility of a
fine and/or imprisonment as referred to
above.
Summary
1. Ensure
that all company legislation is complied
with and that filings are carried out
on time.
2. File
Accounts and Annual Returns on time.
3. Keep
proper books and records of the company,
which at the very least should include
Sales Ledger, Purchase Ledger, monthly
Profit and Loss Account and Balance Sheet,
Banking Records, PAYE and National Insurance
Records, VAT Records etc.
4. Do
not indulge in conduct, which can be construed
as a misappropriation of funds.
5. Avoid
conduct or misconduct, which is likely
to lead to the company's failure.
6. Do
not indulge in acts of Preference or Transfers
at an Undervalue etc if the company is
likely to go insolvent.
7. Do
not indulge in acts of Wrongful Trading
or Fraudulent Trading.
8. If
you believe the company is insolvent,
the test of which is that its "liabilities
exceed its assets" or "inability
to pay debts as and when they fall due,"
you have a duty to cease trading immediately.
9. In
the event of insolvency, co-operate fully
with the Liquidator/ Official Receiver
appointed.
