Bill set to bring disqualification changes

New legislation designed to reduce barriers that can hold back small businesses from growing and competing will include a number of changes affecting director disqualifications.

The Small Business, Enterprise and Employment Bill, which is currently progressing through Parliament, includes measures that the government says will modernise and strengthen the director disqualification regime, to give consumers and the business community confidence that wrongdoers will be prevented from acting as directors.

It says the measures will also strengthen the mechanisms that compensate creditors for director misconduct. They include:

  • increasing the period of time within which disqualification proceedings can be taken following a formal insolvency from two to three years
  • introducing a new power to enable the Secretary of State to apply for a compensation order to be made against a disqualified director where misconduct has caused identifiable loss to creditors
  • allowing liquidators and administrators to assign certain legal claims that currently only they can pursue to a third party, such as a creditor or claims firm
  • ensuring that automatic prohibitions that apply to bankrupts and persons subject to bankruptcy restrictions, preventing them from acting as directors and insolvency practitioners, applies consistently across the UK
  • enabling disqualification proceedings to be taken in the UK where there has been misconduct, or directors have been convicted, in overseas companies.

The Bill is scheduled to undergo line by line scrutiny in its committee stage in mid-October, with a report due to the House of Commons on 6 November.

Director disqualifications, which can last for up to 15 years, are imposed in cases of unfit conduct, including allowing a company to continue trading when it cannot pay its debts, not paying tax owed or using company money or assets for personal benefit.

Expert legal advice is essential for directors facing disqualification. At Palmers, we can advise on the most appropriate way forward. As well as defending proceedings, we can advise on making a voluntary undertaking, where a director might accept a shorter disqualification period than was being sought. For more information, please contact Andrew Skinner.