History

• See Lord Millett in Official Receiver v Wadge Rapps & Hunt [2003] UKHL 41 and Companies Act 1928
  Companies Act 1928
  Companies Act 1928 was an Act of the Parliament of the United Kingdom, which regulated UK company law.-Provisions:It introduced the power of the court to make a disqualification order prohibiting a person from being concerned in the management of a company was introduced by section 75...
  
  
• The introduction of mandatory disqualification followed Sir Kenneth Cork's recommendations in the Insolvency Law and Practice, Report of the Review Committee (1982) (Cmnd 8558). It recommended that application for a mandatory order should be made by the liquidator or, with the leave of the court, by a creditor. This was not acceptable to Parliament, which understandably considered that greater safeguards are necessary in the case of a mandatory order than are required where the court retains a discretion to decline to make an order.

Compulsory disqualification

• s 1 says you can be disqualified from being a director, liquidator or administrator, receiver or manager, or involved in promotion or management of the company.
• s 2 disqualification may be made for an indictable offence in connection with promotion, formation, management or liquidation of a company or with the reeivership or management of a company’s property. It can be passed by a court in winding up proceedings, before or after the conviction. The maximum period is five years for summary jurisdiction courts and 15 years otherwise.
• s 3 disqualification for three or more breaches of companies legislation. This could include failure to deliver company accounts (s 242), payment of capital or share buybacks in ltd’s without following the requirements (s 713), failure of a receiver or manager to make similar such returns (s 41 IA 1986) or the failure of a liquidator to do so (s 170 IA 1986) and the maximum period of disqualification is five years.
• s 4 allows disqualification for fraudulent trading (s 212) or fraud in relation to the company by an officer, liquidator, receiver or manager in breach of duty and the maximum period is 15 years.

Unfitness criteria

• s 6 the Secretary of State can make an application for the court to declare that a director of an insolvent company is unfit to be concerned in management. The maximum is 15 and the minimum 2 years.
• A company is insolvent if it goes into liquidation when assets are insufficient to pay debts and winding up expenses, an administration order is made or an administrative receiver is appointed.

• Sch 1 says the matters relevant for unfitness are,
  • misfeasance or breach of duties
  • misapplication of property
  • directors’ responsibility for transactions liable to be set aside under IA 1986 Part XVI for debt avoidance (e.g. at undervalue…)
  • directors’ responsibility for failure to keep proper records and make annual returns (ie company details s 855)
  • failure to approve and sign company accounts
  • responsibility for entering a transaction for giving preference that could be set aside under s 127 IA 1986 or one at an undervalue, s 238-240 IA 1986
• failure to comply with IA 1986 obligations.

• s 8 disqualification can follow an investigation of the company (for fraud, insider trading, etc) and be for 15 years if someone is deemed unfit. s 9 regard again to Sch 1.

• Re Sevenoaks Stationers (Retail) Ltd
  Re Sevenoaks Stationers (Retail) Ltd
  Re Sevenoaks Stationers Ltd [1991] Ch 164 is a UK company law case concerning the test of being unfit to run a company under the Company Directors Disqualification Act 1986 section 6.-Facts:...
  
  [1991] Ch 164

Consequences

• s 10 wrongful or fraudulent trading, leading to a requirement to make a contribution to the assets, regardless of any application made, the court will say whether it thinks fit to make the order for a 15 year maximum.
• s 11 an undischarged bankrupt cannot be a director.
• s 12 anyone failing to make a payment required by an administration order can be disqualified for up to 2 years.
• s 13 a person who acts in contravention to disqualification is guilty of an offence, and faces 2 years prison, fines up to the statutory maximum and is punishable on summary conviction for prison of no more than 6 months.
• s 14 when a company is guilty of an offence under s 13, then the neglect or act of any director makes them liable.
• s 15 a person disqualified who continues to act becomes personally liable for the debts of a company.

• Re Lo-Line ElectricMotors Ltd [1988] Ch 477, Sir Nicholas Browne-Wilkinson VC
• Re Westmid Packing Service Ltd [1998] 2 BCLC 646, Lord Woolf MR
• Re Barings plc (No 5) [1999] 1 BCLC 433, Jonathan Parker J

External links

• Disqualified Director Database from the Insolvency Service
  Insolvency Service
  The Insolvency Service is an executive agency of the United Kingdom's Department for Business, Innovation and Skills which:* administers and investigates the affairs of bankrupts, of companies and partnerships wound up by the court, and establishes why they became insolvent;* acts as...