More pain for disqualified directors

Posted by Natasha Biggs


From the 1 October 2015, as a result of the Small Business, Enterprise and Employment Act 2015 (the “Act”), creditors who suffer a loss as a result of the actions of a disqualified director’s actions can seek to claim compensation from the director through the courts.

The Secretary of State for Business Innovation and Skills (“the Secretary of State”) believes that those creditors who miss out financially and suffer a loss because of the actions of a director who goes on to be disqualified should be able to seek redress through the courts from the director.

The Act means that if a director is disqualified, for behaviour that is deemed inappropriate, after 1 October 2015 then he or she may face a claim in the proceedings, from any of their creditors, to pay compensation.

However, the Act does not stop there and a number of additional powers have been added for the Secretary of State to use as they seek to disqualify directors who, they consider, to be a risk to the public.

In addition to the current powers and grounds for disqualification which the Secretary of State can already rely upon:

  • allowing a company to continue trading when it can’t pay its debts;
  • not keeping proper company accounting records;
  • not sending accounts and returns to Companies House;
  • not paying tax owed by the company; and
  • using company money or assets for personal benefit

The Act has added the following grounds for the Insolvency Service to use in terms of seeking to disqualify a director:

  • being convicted of a company related offence abroad;
  • you have instructed and/or influenced a director to behave in a way that resulted in the disqualification of that director;
  • you have breached laws or regulations; and
  • you have a proven history of being involved in failing companies.

The new Act means that, for the first time, the court will look at the loss caused when considering if a disqualification order is appropriate.

The Secretary of State will also be able to use for the first time in disqualification proceedings, from the 1 October 2015, in cases of unfit conduct occurring after October 1, information which is available from other regulators.

Finally, the new Act also extends the amount of time that the Secretary of State has to prepare proceedings before needing to issue them from the current 2 years to 3 years following insolvency.

For advice in relation to disqualification proceedings and how best to deal with contact from the Insolvency Service, on behalf of the Secretary of State, please contact Natasha Biggs on 01634 887347.

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