On 1 October 2015, new provisions came into force which extend the director disqualification regime. These have been introduced by the Small Business, Enterprise and Employment Act 2015.

Perhaps the most eye-catching change is that for the first time the courts will be able to order a director to personally pay compensation to creditors who have lost out financially due to the director’s unfit conduct that occurs after 1 October 2015.

Other key changes include:

  • directors can be disqualified if they have been convicted of certain offences abroad (equivalent to indictable offences relating to matters such as receivership and liquidation);
  • the regime is extended so that persons instructing unfit directors can also be disqualified from acting as directors;
  • the conduct of directors of overseas companies can be taken into account by the court when considering whether to make a disqualification order;
  • other matters to be taken into account by the court are extended; and
  • the period of time for an application to seek a disqualification order will increase from two to three years commencing from the insolvency of the company in question.

This is also a timely reminder of the disqualification regime generally; one of the ways intended to shield innocent investors and creditors from offending directors. A brief summary is below.

Under the Company Directors Disqualification Act 1986, the Secretary of State can apply for an order for disqualification (or accept an undertaking) if doing so is in the public interest. An investigation can be carried out by a number of authorities, including the police and Serious Fraud Office if fraud or bribery is suspected, Companies House if the disqualification is due to failure of the directors to complete relevant filings, and the Insolvency Service where companies have become insolvent or where proper accounting records were not maintained. Some key provisions are as follows:

  • Directors (including shadow directors) can be disqualified for up to 15 years.
  • Disqualification does not just apply to directorships, but may also limit a person’s ability to act as a charity trustee or school governor, and membership of certain professional bodies may be affected.
  • The exact provisions surrounding “unfit conduct” are detailed, but the conduct generally derives from:
    • behaviour which is to the detriment of creditors when a company is insolvent;
    • failure to comply with company law obligations; and
    • failure to ensure that a company is properly run.
  • Breaching a disqualification order is a criminal offence which can lead to an unlimited fine or up to two years’ imprisonment. In addition, the individual can be personally liable for the company’s debts incurred whilst they wrongfully acted as director. Non-disqualified directors can also be held responsible for these debts if they acted under the instructions of a disqualified director.

Some interesting disqualification cases:

Arboretum Sports (UK) Limited (April 2015)

David Dixon was found guilty of offences relating to his involvement in a multi-million pound Ponzi scheme, and sentenced to three years and ten months in prison, and was disqualified for ten years. Mr Dixon fled to Malaysia in late 2011, and his extradition in September 2014 was believed to be the first of its kind.

Sustainable Growth Group (December 2014)

Sustainable Growth Group directors Gary West, James Whale and Stuart Stone were prosecuted by the Serious Fraud Office in December 2014. The men were found guilty of conspiracy to commit fraud, conspiracy to furnish false information, fraudulent trading and also of the first offences under the Bribery Act 2010 brought by the SFO. West and Whale were sentenced to nine years in prison, and disqualified from acting as directors for 15 years; Stone was sentenced to six years in prison and disqualified for ten years.

JJB Sports plc (December 2014)

Christopher Ronnie was sentenced to four years in prison for three counts of fraud in December 2014, originating out of Mr Ronnie’s failure to declare his interest in contracts entered into, which was, according to the sentencing judge, a “flagrant and disrespectful breach of your duty as a CEO of a plc”.   Mr Ronnie was sentenced to four years in prison, and disqualified from acting as a director for eight years.