Company Directors Disqualification Act 1986

The court shall make a disqualification order against a person in any case where it is satisfied—

(a) that he is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently), and

(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company.(s. 6(1))

A "director" is deemed to include a "shadow director", which is defined as a person in accordance with whose directions or instructions the directors of the company are accustomed to act (but so that a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity).(s. 9(2) and s. 22(5))

The maximum period for such and order is 15 years, and the minimum period is 2 years.(s. 6(4))

A company becomes insolvent if—

(a) the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,

(b) an administration order is made in relation to the company, or

(c) an administrative receiver of the company is appointed;

and references to a person’s conduct as a director of any company or companies include, where that company or any of those companies has become insolvent, that person’s conduct in relation to any matter connected with or arising out of the insolvency of that company.(s. 6(3))

The following factors must be considered in determining whether a director is unfit (s. 9 and Schedule 1):

In all cases

• Any misfeasance or breach of any fiduciary or other duty by the director in relation to the company.
• Any misapplication or retention by the director of, or any conduct by the director giving rise to an obligation to account for, any money or other property of the company.
• The extent of the director’s responsibility for the company entering into any transaction liable to be set aside under Part XVI of the Insolvency Act 1986 (provisions against debt avoidance).
• The extent of the director’s responsibility for any failure by the company to comply with any of the following provisions of the Companies Act 1985, namely—

(a) s. 221 (companies to keep accounting records);

(b) s. 222 (where and for how long records to be kept);

(c) s. 288 (register of directors and secretaries);

(d) s. 352 (obligation to keep and enter up register of members);

(e) s. 353 (location of register of members);

(f) s. 363 (duty of company to make annual returns);

(h) ss. 398 and 703D (duty of company to deliver particulars of charges on its property).

• The extent of the director’s responsibility for any failure by the directors of the company to comply with—

(a) s. 226 or s. 227 (duty to prepare annual accounts), or

(b) s. 233 (approval and signature of accounts).

Where the company has become insolvent

• The extent of the director’s responsibility for the causes of the company becoming insolvent.
• The extent of the director’s responsibility for any failure by the company to supply any goods or services which have been paid for (in whole or in part).
• The extent of the director’s responsibility for the company entering into any transaction or giving any preference, being a transaction or preference—

(a) liable to be set aside under s. 127 or ss. 238 to 240 of the Insolvency Act 1986, or

(b) challengeable under s. 242 or s. 243 of that Act or under any rule of law in Scotland.

• The extent of the director’s responsibility for any failure by the directors of the company to comply with s. 98 of IA1986 (duty to call creditors’ meeting in creditors’ voluntary winding up).
• Any failure by the director to comply with any obligation imposed on him by or under any of the following provisions of IA1986—

(a) s. 22 (company’s statement of affairs in administration);

(b) s. 47 (statement of affairs to administrative receiver);

(c) s. 66 (statement of affairs in Scottish receivership);

(d) s. 99 (directors’ duty to attend meeting; statement of affairs in creditors’ voluntary winding up);

(e) s. 131 (statement of affairs in winding up by the court);

(f) s. 234 (duty of any one with company property to deliver it up);

(g) s. 235 (duty to co-operate with liquidator, etc.).

Assessment is considered to be an objective standard in determining what is ordinarily expected of people fit to be directors of companies. Directors must inform themselves of company affairs and join in with other directors to supervise those affairs.[1] The courts have identified relevant factors for determining the length of the disqualification period:

• a company director should realise that his statutory and fiduciary obligations are personal responsibilities
• the primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies showed them to be a danger to creditors and others
• the period of disqualification must reflect the gravity of the offence
• the period of disqualification may be fixed by starting with an assessment of the correct period to fit the gravity of the conduct, and a discount is then given for mitigating factors
• a wide variety of factors, including the former director’s age and state of health, the length of time he has been in jeopardy, whether he has admitted the offence, his general conduct before and after the offence, and the periods of disqualification of his co-directors that may have been ordered by other courts, may be relevant and admissible in determining the appropriate period of disqualification[2]

The courts have also provided guidance as to what constitutes an appropriate length for a disqualification period:

• periods over ten years should be reserved for particularly serious cases, which may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.
• six to 10 years should apply for serious cases which do not merit the top category.
• two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.[3]

The following persons are automatically disqualified:

• undischarged bankrupts, persons subject to a moratorium period under a debt relief order, and persons subject to a bankruptcy restrictions order or a debt relief restrictions order(s. 11)
• those who have failed to make a payment under a county court administration order(s. 12)
• those subject to a disqualification order under corresponding Northern Ireland legislation(s. 12A)

Effective 20 June 2003,[4] the Enterprise Act 2002[5] added ss. 9A - 9E to the Act, which expand the mandatory disqualification régime to cover the following breaches of competition law under the Competition Act 1998 or the Treaty establishing the European Community:

• agreements preventing, restricting or distorting competition
• abuse of a dominant position

The factors for determining unfitness in this case relate solely to behaviour concerning the breach of competition law, and the other factors listed in Schedule 1 do not apply. Disqualification may be made through an order of the court or through an undertaking.

In March 2015, the Small Business, Enterprise and Employment Act 2015[6] received Royal Assent. On 1 October 2015, Part 9 of the 2015 Act came into force,[7] which amended the 1986 Act to introduce:

• inclusion of relevant foreign offences as grounds for disqualification (s. 104)
• extension of the régime to persons instructing unfit directors of insolvent companies (s. 105)
• revision of the procedure for determining the unfitness of directors and shadow directors (s. 106)
• requirements for official receivers, liquidators, administrators and administrative receivers to report to the Secretary of State on the conduct of each person who was a director of a company on the insolvency date or within the three years before (s. 107)
• provision for compensation orders and undertakings on persons who are subject to disqualification orders or undertakings, where the person's conduct as a director caused loss to one or more creditors during the time he was a director of an insolvent company (s. 110)

• where a person acts contrary to a disqualification order, undertaking or automatic disqualification without the leave of the court, he is guilty of an offence, and is subject on indictment to a sentence of up to 2 years in prison and/or a fine, or on summary conviction to a sentence of 6 months and/or a fine at the statutory maximum.(s. 13)
• where a body corporate is convicted of acting contrary to a disqualification order, and it is shown that a person has contributed to the offence through consent, connivance or neglect, both parties are equally liable.(s. 14)
• a person is liable for the debts of a company where he acts contrary to a disqualification order or undertaking, or where he acts or is willing to act on the instructions of another person who is similarly subject to the same.(s. 15)

A person subject to a disqualification order or undertaking will also be disqualified from acting as:

• a charity trustee without permission of the court or the Charity Commission for England and Wales (as the case may be)
• a school governor
• a trustee of an occupational pension scheme without leave from the Pensions Regulator
• a member of a police authority
• a director, trustee or committee member of a registered social landlord
• a member of the Council for Healthcare Regulatory Excellence and various other health commissions and social care bodies

Membership in certain professional bodies may also be affected, and members may be required to notify the fact of such disqualification to the body in question.[8]