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Small Business, Enterprise & Employment Act: Directors’ Disqualification and Creditor Compensation – An overview

Posted
October 11, 2016
Insolvency

 Many company directors don’t realise that if they face disqualification, the period when disqualification proceedings can be started against them has increased from 2 to 3 years after new law was passed last year. Here’s a summary of Directors’ Disqualification the changes and what they might mean to you: In the words of the Department for Business, Innovation & Skills, the aim of the new law was to:

Modernise and strengthen the director disqualification regime to give the business community and consumers’ confidence that wrongdoers will be barred as directors”.

It is also to simplify the procedure used by insolvency practitioners (liquidators, administrators, administrative receivers) and official receivers to report on the conduct of the directors of insolvent companies and to strengthen mechanisms that compensate creditors for director misconduct. The law was introduced, amongst other things to:

  • Require IPs to send a report on the conduct of all directors of insolvent companies.
  • Enable proceedings to be taken against a person who has caused a director’s unfitness ie the person on whose instructions the named director acted
  • Increase the period of time within which disqualification proceedings may be taken following a formal insolvency from 2 to 3 years.
  • Require courts to consider a wider range of matters – including the director’s track record and nature of losses - when deciding whether or not to seek disqualification.
  • Enable disqualification proceedings to be taken in the UK where directors of overseas companies had been guilty of misconduct, or convicted.
  • Allow liquidators and administrators to assign certain legal claims to a 3rd party (such as a creditor or claims firm) that currently only the liquidator/administrator may pursue.
  • Ensure consistency across the UK in the application of automatic prohibitions  that apply to bankrupts and persons subject to bankruptcy restrictions, preventing them from acting as directors and insolvency practitioners.
  • Enable the Secretary of State to seek compensation where the misconduct has caused loss to a creditor.

Commenting, Gavin Pickering, Partner at stevensdrake, said: “The changes are intended to provide a simplified system for reporting the misconduct of a director and in doing so increase creditors’ confidence in the process. It should also lead to more effective interventions and return greater compensation for those suffered at the hands of director misconduct.Unfortunately the longer period of time within which disqualification proceedings may be started means it will take longer for directors to know if they are in the clear so they can move on."

Source:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417337/bis-15-264-SBEE-Act-directors-disqualifications-fact-sheet.pdf

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