Small Business, Enterprise and Employment Act 2015: Director Disqualification

Director disqualification – extension of limitation period – COMMENCEMENT ORDER TO BE ANNOUNCED

This is part of a series of posts on the Small Business, Enterprise & Employment Bill that has now come into force on 26 March 2015 following the grant of Royal Assent and is now the Small Business, Enterprise and Employment Act 2015 (“the Act”).

This series of posts is intended to update the readers of the key changes, which should radically transform the transparency of the marketplace as regards the operation, control, ownership and risk associated to limited companies in the UK.

We have not addressed all of the issues described in our previous posts, to avoid duplication, but would welcome any queries from the reader in this respect.

The commencement of these changes is different dependant on which part of the Act is being reviewed (Section 164 of the Act defines commencement) and we have highlighted below the relevant commencement dates. Where we below stated “to be announced” this means it has not yet come into force and will commence upon the making of a Commencement Order.

The changes as set out below will be extremely important to all directors, companies and individuals with business in the future and it cannot be emphasised too strongly how important it is that you are prepared for these proposed changes. At Francis Wilks & Jones we can advise on all matters subject to these posts.

Director disqualification claims previously could only be brought against directors within a period of 2 years from the date of insolvency. 

However, this limitation period is now extended to three years and, as a result of the shortening of the report timetable for liquidators/administrators to provide their reports on the directors’ conduct, there is a much greater period of time during which investigations into conduct of directors of insolvent companies can continue.

As stated above, this widening of the liability of directors includes shadow directors, and will certainly have consequences for non-executive directors who historically considered they were exempt from such risk.

The extension of this investigation period will obviously mean that the Secretary of State will be able to put together a stronger case in future disqualification claims, which are issued to protect the public interest. Conversely, this will leave the potential consequences of having been a director of an insolvent company will go on even longer with the ongoing threat of a disqualification claim hanging above directors (plus compensation orders which will further extend this threat – see the next blog).

It is always recommended that former directors confront any initial enquiries they received early on rather than ignoring them and these changes, once implemented, will make this even more important. Please contact Francis Wilks & Jones should you require any further assistance with regard to these matters.

Director Disqualification – Extension Of Limitation Period

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

Director disqualification claims currently can only be brought against directors within a period of 2 years from the date of insolvency. However, this limitation period is further shortened by the fact that the D Report filed with the Secretary of State by Liquidators and Administrators is not due until 6 months after the commencement of insolvency, and is often prepared towards the end of that period as it takes some time to ascertain whether there is anything to report. 

This often leaves a very short period for the Insolvency Service, which is an executive agency of DBIS and acts on behalf of the Secretary of State, to review the matters, investigate any misconduct by directors, obtain approval to commence proceedings, draft evidence and negotiate with directors before the limitation period expires.

I also refer to my previous blog on the amendments to the deadline for submission of a D Report, which is proposed to be shortened to 3 months. Additionally, Section 96 of the Bill now also proposes that the limitation period be extended from 2 to 3 years (although Vince Cable had proposed 5 years in his initial discussion paper published in July 2014).

The extension of this investigation period will obviously mean that the Secretary of State will be able to put together a stronger case in future disqualification claims, which are issued to protect the public interest. Conversely, this will leave the potential consequences of having been a director of an insolvent company to last longer with the ongoing threat of a disqualification claim hanging above directors.

It is always recommended by us that former directors confront any initial enquiries early on rather than ignoring them and the above changes will make this even more important. Please contact Francis Wilks & Jones should you require any further assistance with regard to these matters.

Disqualification Following Convictions Abroad

This is part of a series of blogs on the Small Business, Enterprise & Employment Bill (“the Bill”) that is proposed to come into force in April 2015.

The Bill has introduced new dimensions into director disqualification, in terms of an individual being disqualified from acting as a director as a result of non-UK convictions. This only applies to convictions which are comparable to indictable offences in the UK. An indictable offence is a criminal offence that can be tried in the Crown Court (rather than a less serious summary offence, which is normally considered in the Magistrates Court).

This presents an entirely new range of disqualification claims which may be made by the Secretary of State against directors, in a similar way to current disqualification claims, solely on the basis of non-UK offences. This will obviously present difficulties in defending such claims, collating the evidence in answer, dealing with technical aspects relating to the original jurisdiction and human rights aspects.

The proposed amendment also provides for individuals to offer disqualification undertakings upon receiving notice of such steps (usually with a view to avoiding legal costs).

This will have incredible consequences for UK directors who may be involved in international companies and who may now be potentially disqualified despite having a clean record in the UK.

Should you require advice on this, or consider that this may impact on you or your clients, please contact Francis Wilks & Jones and we can assist by reference to our long history of dealing with director disqualification matters.