Directors behaving badly…

Unlike one of my favourite programmes in the 90s, Men Behaving Badly, directors behaving badly is no laughing matter.  I loved the mischief that Gary and Tony got up to and the stereotypical male behaviour of the two of them.  However when a director gets up to mischief, it can have severe consequences on the individual, the company and third parties.  Consequently, new measures were introduced as of 1 October 2015 to strengthen the director misconduct regime.

The measures place a strong emphasis on accountability of directors and those who act inappropriately (and we aren’t talking about the Christmas Party office behaviour) now face a tougher disqualification regime.  This is as a result of government proposals, outlined in their “Transparency and Trust’ consultation that took place in 2013/14, and are being introduced through the Small Business Enterprise and Employment Act 2015.

Director Disqualification

Measures are being introduced to further strengthen the director disqualification regime. As part of the changes, the matters (or ‘bad behaviour’ well, I have to keep the theme running) that the Secretary of State or the court must take into account when considering whether a person should be disqualified has been made clearer. The matters will include breaches of laws or regulations, the loss or harm their conduct has caused, and its frequency.  Once again when I here conduct and frequency I can’t help but think of the mischievous Gary and Tony.

The scope of director disqualification will be extended to allow for the disqualification of a person who influences or instructs unfit directors. The Secretary of State and the courts will also gain the power to disqualify a person convicted of a company related offence abroad; oh dear can you imagine Gary and Tony in Ibiza or Magaluf??

Now there is a 3 year (previously 2 year) period in which to apply to the court for a director disqualification order against the director of an insolvent company.  Further, the scope of material and access to information available during director disqualification investigations is also extended.

Compensation Orders

While there are existing provisions within the Insolvency Act 1986 to require delinquent directors to repay monies; the financial risk to errant directors is to be extended through the creation of compensation orders and undertakings. Not that this would help anyone seeking to take action against our ‘Men Behaving Badly’ as they were pretty much always skint!  Anyway, back on track, this means that a disqualified director can be required to pay the amount of money lost through his misconduct.  Compensation can be sought for conduct that occurs on or after 1 October 2015.

Further measures to streamline reporting of director misconduct in insolvent companies will come into effect from April 2016 with the first of the new online conduct reports expected to be submitted in June 2016.

Although all of the above disqualification measures came into force on 1 October, not all of them will have immediate effect. The information below summarises how some of the new measures will be implemented.

  • Disbarring from local Pub: Currently in force (JOKE, this is not a new measure under the regime…);
  • Disqualification following overseas convictions: Convictions after 1 October 2015 regardless of when the offence took place;
  • Persons instructing a disqualified director: Instructions that give rise to conduct after 1 October 2015 that results in disqualification;
  • Time Limits  for instituting proceedings increased to 3 years: Insolvencies after April 2016;
  • Compensation Regime: Conduct after 1 October 2015.

Powers and options extended

I was trying to figure out how this section applied to our topic but as yet failed. All that keep popping into my mind was how they tried to ‘wangle’ out of being accountable and always managed to be led astray…  So for this part, we’ll have to stick to the information as it is…

As well as the introduction of compensation orders, there are further measures aimed at promoting accountability and improving returns to creditors in corporate insolvencies.  The power for an office-holder to bring fraudulent or wrongful trading actions is extended to administrators; previously such powers were available only in insolvent liquidations.

Office-holders will also be able to assign such actions, as well as rights of action for transactions at an undervalue/gratuitous amounts, preferences/unfair preferences and extortionate credit transactions.

Are these changes welcome?  Let us know your thoughts, and get in touch if you’re affected by Men – I mean Directors Behaving Badly, and to #BeCompliant #BeSafe and #GetLawSavvy

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