Lloyd's Maritime and Commercial Law Quarterly
DISQUALIFYING COMPANY DIRECTORS
Brenda M. Hannigan*
There has in recent years been considerable public and parliamentary disquiet about the apparent inability of the law to deal with “delinquent” directors.1 The problem is that, as long as company directors can shelter behind the corporate form and suffer no personal liability, they are often indifferent, frequently careless and occasionally reckless with the fortunes of their company and its creditors. On liquidation they simply acquire another “off the shelf” company and proceed as before, until that too goes into winding up.
The Insolvency Act 1985 (much of which is now consolidated in the larger Insolvency Act 1986) attempted to curb the activities of such directors in a number of ways,2 in particular by providing additional grounds for the disqualification of directors and by strengthening the penalties for acting while disqualified.3 Ultimately fewer “unfit” persons should be able to act as directors or be involved in any way in the management of a company. This article will consider the grounds for disqualification and assess the likely impact of the new provisions which are now consolidated (together with some provisions of the Companies Act 1985) in the Company Directors Disqualification Act 1986.4 All references are to that Act unless otherwise stated.
The existing grounds for disqualification
Convicted of an indictable offence
Section 2 provides that where a person is convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management or liquidation of a company, or with the receivership or management of property of a company, then the court5 may make a disqualification order
* Faculty of Law, University of Southampton.
1. See the Report of the Cork Committee on Insolvency Law and Practice, Cmnd.8558 (1982), Chaps. 43–45.
2. See the wrongful trading provision in s. 15 (now s. 214 of the Insolvency Act 1986) and the restrictions on the use of company names in s. 17 (now s. 216 of the Insolvency Act 1986), which is designed to curb the phoenix company syndrome. For detailed consideration of the new provisions, see Sealy, Disqualification and Personal Liability of Directors (1986).
3. ss. 12–16 and 18 of the Insolvency Act 1985. These provisions are now part of the Company Directors Disqualification Act 1986.
4. The new disqualification provisions (supra, fn. 3) in the Insolvency Act 1985 were brought into force on 28 April, 1986: The Insolvency Act 1985 (Commencement No. 3) Order 1986: S.I. 1986 No. 463. The consolidated provisions in the Company Directors Disqualification Act 1986 came into force on 29 December 1986: The Insolvency Act 1985 (Commencement No. 5) Order 1986: S.I. 1986 No. 1924.
5. The court in this instance is as listed in s. 2(2).
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