New measures could lead to more director disqualifications

New regulations designed to improve standards in business could lead to more directors being disqualified.

The measures, which came into force on 1 October, state that the Secretary of State can seek to have a director of a limited company disqualified if they:

• breach laws or regulations
• have been convicted of a company related offence abroad
• influenced or instructed a director to behave in a way that has resulted in the disqualification of that director
• have a track record of being involved in failing companies.

The nature and extent of any harm or loss caused must also now be considered when deciding if disqualification is appropriate.

A government statement says: “The Secretary of State can, for unfit conduct occurring after 1 October 2015, use information from other regulators in disqualification proceedings.

“The maximum period of time elapsing between a company being declared insolvent and the Secretary of State seeking disqualification proceedings increases from 2 to 3 years.

“A disqualified director can in future be required by the Court to pay compensation to creditors who have lost out financially for unfit conduct that occurs after 1 October 2015.

“A compensation process is also being introduced to provide better financial redress for the loss creditors have suffered as the result of the conduct of disqualified directors.”

The changes follow the passage of the Small Business, Enterprise and Employment Act 2015 which received Royal Assent in March.

Please contact Sing Li if you would like more information about the issues raised in this article or any aspect of company law.