Part F Management, administration and regulation of companies 18: Company directors 277Under the CDDA 1986 the court may make a disqualification order on any of the following grounds.
(a) Where a person is convicted of an indictable offence in connection with the promotion,
formation, management or liquidation of a company or with the receivership or management of
a company's property.
An indictable offence is an offence which may be tried at a Crown Court; it is therefore a serious
offence. It need not actually have been tried on indictment but if it was the maximum period for
which the court can disqualify is 15 years, compared with only five years if the offence was dealt
with summarily (at the Magistrate's Court).
(b) Where it appears that a person has been persistently in default in relation to provisions of
company legislation.
This legislation requires any return, account or other document to be filed with, delivered or sent or
notice of any matter to be given to the Registrar. Three defaults in five years are conclusive
evidence of persistent default.
The maximum period of disqualification is five years.
(c) Where it appears that a person has been guilty of fraudulent trading. This means carrying on
business with intent to defraud creditors or for any fraudulent purpose whether or not the company
has been, or is in the course of being, wound-up.
The person does not actually have to have been convicted of fraudulent trading. The legislation also
applies to anyone who has otherwise been guilty, of any fraud in relation to the company or of any
breach of their duty as an officer.
The maximum period of disqualification is 15 years.
(d) Where the Secretary of State acting on a report made by the inspectors or from information or
documents obtained under the Companies Act, applies to the court for an order believing it to
be expedient in the public interest.
If the court is satisfied that the person's conduct in relation to the company makes that person
unfit to be concerned in the management of a company, then it may make a disqualification order.
Again the maximum is 15 years.
(e) Where a director was involved in certain competition violations. Maximum – 15 years.
(f) Where a director of an insolvent company has participated in wrongful trading. Maximum – 15
years.
The court must make an order where it is satisfied that the following apply:
(a) A person has been a director of a company which has at any time become insolvent (whether while
they were a director or subsequently).
(b) Their conduct as a director of that company makes them unfit to be concerned in the management
of a company. The courts may also take into account their conduct as a director of other companies,
whether or not these other companies are insolvent. Directors can be disqualified under this section
even if they take no active part in the running of the business.
In such cases the minimum period of disqualification is two years.Illustration^
(^)
Offences for which directors have been disqualified include the following.
(a) Insider dealing
(b) Failure to keep proper accounting records
(c) Failure to read the company's accounts
(d) Loans to another company for the purposes of purchasing its own shares with no grounds for
believing the money would be repaid
(e) Loans to associated companies on uncommercial terms to the detriment of creditors