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Directors disqualification is an interesting area to mull on from a policy perspective. What is it all about? Does the jurisdiction exist to punish errant directors, or, are the regulatory provisions in place so as to protect creditors from directors who abuse the statutory privilege of limited liability through phoenixism and other miscreant activities? (as Professor Sir Otto Kahn Freund QC FBA might hope). In the alternative do the provisions, when coupled with s.214 Insolvency Act 1986 (IA86) wrongful trading, provide a compensatory device, or finally, are we dealing with a device or set of provisions which help to raise standards of business conduct and entrepreneurship?
Some commentators would argue that the Company Directors Disqualification Act 1986 (CDDA86) regulatory jurisdiction exists to provide a protection mechanism for the general public. Protection comes from the removal of, inter alia, 'unfit' (s.6 CDDA) directors from the corporate world for a period of between 2 and 15 years depending on the degree of unfitness and how this sits on the late Dillon, LJ's Re Sevenoaks Stationers (Retail) Ltd  BCLC 325,  Ch 164, scale. Other commentators would argue that the jurisdiction exists as a form of punishment for the miscreant director, especially when accompanied by culpability for s.213 IA86) fraudulent trading (with that provision's attendant mens rea for dishonesty) or wrongful trading contributions to the company's assets as a result of s.214 IA86 culpability. The corollary removal from one's professional body as a result of disqualification (i.e. being struck off as a solicitor) and the subsequent inhibiting of one's ability to earn may also be viewed as a form of punishment. Professor Sally Wheeler's essay on directors disqualification (Wheeler, S. Disqualification of Directors: A Broader View, in: Rajak, H (Ed). Insolvency Law: Theory and Practice. Sweet and Maxwell Ltd, London, 1991) provides an interesting discussion of the area, particularly from the perspective of how civil provisions are used to punish directors and how judges may be using inappropriate policy mechanisms when coming to their decisions. In the wider context of disqualification it is interesting to mull on the wide range of case law and the terms of disqualification that were given out depending on the type of behaviour that was exhibited by the directors. Let us look at a brief sample of case law to determine what conduct gets what sort of period of disqualification. First though here is the pertinent element of s.6 CDDA86 on unfitness: "6 Duty of court to disqualify unfit directors of insolvent companies (1) The court shall make a disqualification order against a person in any case where, on an application under this section, 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." Here are some cases of note that may help us with a smooth navigation through what has been referred to as the “murky waters of both law and…facts” (Secretary of State for Trade and Industry v. Goldberg and another  EWHC 2843 (Ch),  BCLC 597, at paragraph 6) of unfitness within the jurisdiction of directors’ disqualification: Re Sevenoaks Stationers (Retail) Ltd  BCLC 325,  Ch 164 Period of disqualification: 5 years Conduct:
Re Lo-Line Electric Motors Limited  Ch 477 Period of disqualification: 3 years Conduct:
"Ordinary commercial misjudgment is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt in an extreme case of gross negligence or total incompetence disqualification could be appropriate." Re Stanford Services Limited  BCLC 607 Period of disqualification: 2 years Conduct:
Re Rolus Properties Limited (1988) 4 BCC 446. Period of disqualification: 2 years Conduct:
Re Western Welsh International System Buildings Limited (1988) 4 BCC 449. Period of disqualification: 5 years Conduct:
Re Majestic Recording Studios Limited  BCLC 1. Period of Disqualification: 3 years Conduct:
Re McNulty’s Interchange Limited  BCLC 709. Period of disqualification: 18 months Conduct:
Re J and B Lynch (Builders) Limited  BCLC 376. Period of disqualification: 3 years Conduct:
"This is the ultimate statement of where the law on IVAs is to be found in our great common law...