Transparency and Accountability of UK Companies: Insolvency Aspects

BIS recently published the UK Government’s response to the Transparency and Trust discussion paper (published by BIS in June 2013) following a period of consultation launched in July 2013. The proposals cover a wide range of issues affecting UK businesses and corporate governance and aim to encourage greater transparency and accountability to improve trust and confidence in UK business.

The proposals suggest an overhaul of Schedule 1 to the Company Directors Disqualification Act 1986 (CDDA) to be broader and more generic, setting out the factors that will be considered. Those factors will include the director’s track record, culpability, the impact of his behaviour and any material breaches of any regulatory regime that applies to the director or his company.  The courts will take into account these factors both in determining whether to disqualify a director and, if so, for how long.

Other proposals include:

• allowing a director’s overseas misconduct to be taken into account in disqualification proceedings;
• giving the Secretary of State the ability to disqualify an individual from acting as a director in the UK, where that individual has been convicted abroad of a criminal offence in connection with the promotion, formation or management of a company;
• giving the Secretary of State the power to apply to court for a compensation order against a director who has been disqualified (and to empower the Insolvency Service to accept a compensation undertaking offered by such a director) where creditors have suffered identifiable losses as a result of the director’s misconduct;
• allowing causes of action that arise on an insolvency and which may only be pursued by an insolvency office holder (e.g. for fraudulent and wrongful trading) to be sold or assigned to another party to pursue, to increase the chances of action being taken against offending directors for the benefit of creditors;
• extending the period within which director disqualification proceedings, under section 6 of the CDDA, may be commenced from two years to three years after the commencement of an insolvency process; and
• enhancing the ability of sector regulators and the Insolvency Service to share investigative information with each other and enforcement bodies.

The proposals, especially the decision to overhaul Schedule 1 to the CDDA which has remained untouched since it was introduced nearly 30 years ago, will no doubt be welcome.  No guidance has been given as to when these proposals will be introduced; simply that legislation will follow when parliamentary time allows.

For more information, help and advice please contact Kelly Jordan on 0191 211 7899.