Small Business, Enterprise and Employment Act 2015 Compensation Orders

Compensation Orders following disqualification – COMMENCEMENT ORDER TO BE ANNOUNCED

This is part of a series of posts on the Small Business, Enterprise & Employment Billthat 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.

At Section 110 of the Act is a further consequence for directors of insolvent companies. This inserts Section 15A into the Company Directors Disqualification Act 1986 andprovides that, upon the application of the Secretary of State, the Court to make a Compensation Order against a disqualified director provided such misconduct, “has caused loss to one or more creditors of an insolvent company”.

The prime situation where this is likely to occur is where HMRC have not been paid or has been paid less. The amount payable under the compensation order is referable to the directors’ conduct and the quantum of the loss which, without any further restriction, could make this an extremely severe penalty for directors who are liable by reference to their failure to control the wrongdoing director (for example non-executive and spouse directors who may otherwise have had limited involvement in the company).

The limitation period for an application for a Compensation Order is 2 years from the date the disqualification order was made or the date when a disqualification undertaking is accepted.

This will have the dual affect of disincentivizing people to offer a disqualification undertaking (unless these can be linked to an agreed order for compensation) and will lead to the disqualification consequences potentially surviving insolvency by up to 5 years.

Faced with disqualification proceedings, as a result of these changes it is now even more important to seek legal advice. At Francis Wilks & Jones we can advise on all of these risks.

Small Business, Enterprise and Employment Act 2015: Insolvency

Insolvency Practitioners and amendment to D Report duties – 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.

The Act has also now moved to increase the regulatory burden on Insolvency Practitioners and their report on directors’ conduct (which is usually a prerequisite before any disqualification proceedings are commenced).

In summary, and further to the previous blog, the changes as they affect IPs are as follows:

1. An immediate report on the director’s conduct must be prepared by the Official Receiver or Administrator/Liquidator (“the Office Holder”) to the Secretary of State at the date of insolvency OR at any time within a period “ending with that date”.
2. The report must be filed with the Secretary of State within 3 months or “within such longer period as the Secretary of State considers appropriate”.
3. There is an additional obligation to update this report should the Office Holder become aware of any material changes or new evidence which should have been included in the original report.
4. The initial conduct report is not required to be prepared and submitted by a second Insolvency practitioner appointment (for example where a liquidator is appointed after an administrator) unless new material comes to light which should have been included in the original conduct report.
5. This will no doubt theoretically increase the reporting duties of Insolvency Practitioners at a time when their fees are subject to criticism and closer review.

Obviously for both Insolvency Practitioners and Directors these changes will have a serious impact and should you require advice on these changes please do not hesitate to contact Francis Wilks & Jones.

Small Business, Enterprise and Employment Act 2015: Disqualification Following Convictions Abroad

Disqualification following convictions abroad – 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.

Section 104 of the Act has provided that in the criminal Courts, in a similar way as to how the Registrar of Companies may bring disqualification proceedings after a criminal conviction for failures to file accounts and returns, the Secretary of State may now issue disqualification proceedings for a disqualification order to be made if a defendant director has been convicted of offences overseas.

The convictions abroad must either relate to the promotion, formation or management of a company or comprise an indictable criminal offence, i.e. a serious crime (offences in the foreign equivalent of a Magistrates’ court do not count).

Additionally, there is the ability for the individual against who such disqualification is sought to offer a disqualification undertaking, thus avoiding any costs of the legal proceedings. This is particularly important as very recently the Ministry of Justice were considering increasing criminal victim surcharges and seminal costs orders in criminal proceedings (which historically were not high, usually around £120) to approximately £1,000.

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.

Insolvency Practitioners And Amendment To D Report Duties

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.

Until the commencement of the Bill, there is a legal requirement for the Official Receiver, appointed Liquidators, Administrators and Administrative Receivers to file a report with the Secretary of State on a director’s conduct in the period leading up to the commencement of insolvency. This report is often referred to as a “D-Report”.

The Bill now proposes to make the compilation of a D Report more onerous by requiring that it be filed within 3 months (subject to any agreement by the Secretary of State to extend this period) of the commencement of insolvency, which could provide little opportunity for Insolvency Practitioners to properly report on a director’s conduct.

Additionally, the appointed Liquidator or Administrator will also have the additional duty to provide the same report on an ongoing basis where any information appears that would ordinarily have been referred to or included in the D Report. This will increase the reporting duties of Insolvency Practitioners and also serve to extend the reporting period (and thus the likelihood of disqualification proceedings being commenced against former directors).

Obviously for both Insolvency Practitioners and Directors these changes will have a serious impact and should you require advice on these changes please do not hesitate to contact Francis Wilks & Jones.