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Such behaviour is reprehensible and is clearly an abuse of limited liability. The Act was introduced in an attempt to prevent the misuse of the company form.        MYACCA Home> Students> Qualification resources> ACCA Qualification> Past papers and syllabuses> F4 Corporate and business law> Technical articles Company directors disqualification act 1986 Share on emailEmail Share on printPrint Share on twitterTwitter Share on facebookFacebook Share on linkedinLinkedin More Sharing ServicesAdd This by David Kelly 04 Feb 2005 This article examines the way in which the law tries to prevent unsuitable individuals from acting as company directors. . but with no liability to the creditors of the former company. These are: a. The CDDA1986 seeks to remedy this practice by preventing certain individuals from acting as company director. lead the court to disqualify certain persons from being involved in the management of companies. Categories of conduct The CDDA1986 identifies three distinct categories of conduct which may. but the ambit of the Act's control is much wider than this one instance. This is a company set up by a director of a very similar company which ceased trading due to extensive debts. and in some circumstances must.a conviction for an indictable offence in connection with the promotion. The maximum period for disqualification under S2 is five years where the order is made by a court of summary jurisdiction. formation. The new company carries on essentially the same business. management or liquidation of a company or with the receivership or management of a company's property (S2 of the CDDA1986). One of its specific aims was the control of the 'phoenix company'. General misconduct in connection with companies  Misconduct is defined as: . Such an individual can be disqualified from acting as a director for up to 15 years under the Company Directors Disqualification Act 1986 (CDDA). and 15 years in any other case.

persistent breaches of companies legislation in relation to provisions which require any return. the minimum period of disqualification is two years. the courts have given indications as to what sort of behaviour will render a person liable to be considered unfit to act as a company director. The maximum period of disqualification under this category is 15 years. The maximum period of disqualification under this section is five years. or notice of any matter to be given to. who are found by the court to be unfit to be directors (S6 of the CDDA1986). account or other document to be filed with. in the five years ending with the date of the application. Under S8 of the CDDA1986. he has been adjudged guilty of three or more defaults (S3(2) of the CDDA1986). Once again. it appears that a person: . Thus. b. The detailed list of matters to be considered is set out in Schedule 1 to the Act. the maximum period of disqualification is 15 years. while an officer or liquidator of the company or receiver or manager of the property of the company. in the course of the winding up of a company.disqualification after investigation of a company under Pt XIV of the CA1985 (S8 of the CDDA1986). of any fraud in relation to the company or of any breach of his duty as such officer. A court may make a disqualification order if.disqualification of directors of companies which have become insolvent. that is. The CDDA1986 sets out certain particulars to which the court is to have regard where it has to determine whether a person's conduct as a director makes them unfit to be concerned in the management of a company (S9). This is without prejudice to proof of persistent default in any other manner. In addition. liquidator.has been guilty of an offence for which he is liable under S458 of the Companies Act 1985.. A disqualification order may be made as the result of an investigation of a company under the companies legislation. Disqualification for unfitness  This covers: .has otherwise been guilty. the registrar (S3 of the CDDA1986). receiver or manager (S4(1)(b) of the CDDA1986). that he has knowingly been a party to the carrying on of the business of the company either with the intention of defrauding the company's creditors or any other person or for any other fraudulent purpose . Under S6. Section 3 provides that a person is conclusively proved to be persistently in default where it is shown that. the Secretary of State may apply to the court for a disqualification order to be made against a person who has been a director or shadow director of any company.fraud in connection with winding up (S4 of the CDDA1986). . up to a maximum of 15 years . in Re Lo-Line Electric Motors . if it appears from a report made by an inspector under S437 of the CA or Ss94 or 177 of the Financial Services Act 1986 that 'it is expedient in the public interest' that such a disqualification order should be made.

Disqualification orders For the purposes of most of the CDDA1986. although. under which the court may make an order preventing any person (without leave of the court) from being:     a director of a company a liquidator or administrator of a company a receiver or manager of a company's property in any way. whether directly or indirectly.' A 'lack of commercial probity'. the conduct complained of must display a lack of commercial probity. therefore. even where there is no dishonesty. with leave to continue to act as a director for a short period of time.' Consequently.Ltd (1988). in order to enable the disqualified director to arrange his business affairs (Re Ipcon Fashions Ltd (1989)) .. the Court of Appeal held that the director was unfit to be concerned in the management of a company on the basis that: 'His trouble is not dishonesty... the court has a duty to make a disqualification order (S6 of the CDDA1986). However. In the normal case. but incompetence or negligence in a very marked degree. will certainly render a director unfit. disqualification could be appropriate.participation in fraudulent or wrongful trading under S213 of the Insolvency Act 1986 (S10 of the CDDA1986) . Where. in Re Sevenoaks Stationers Ltd (1990). a person has been found to be an unfit director of an insolvent company. Thus. but. Other cases for disqualification  This relates to: . concerned with or taking part in the promotion.failure to pay under a county court administration order (S12 of the CDDA1986). in an extreme case of gross negligence or total incompetence. but also against someone who has shown in his conduct of a company a failure to appreciate or observe the duties attendant on the privilege of conducting business with the protection of limited liability.undischarged bankrupts acting as directors (S11 of the CDDA1986) . formation or management of a company. I do not think it is necessary for incompetence to be "total" to render a director unfit to take part in the management of a company. not only against the activities of those guilty of the more obvious breaches of commercial morality.. it was stated that: 'Ordinary commercial misjudgement is in itself not sufficient to justify disqualification. a disqualification order may be made: i. as Vinelott J stated in Re Stanford Services Ltd (1987): '. incompetence may render a director unfit.the public is entitled to be protected. however.' c. and that is enough to render him unfit. The precise nature of any such order is set out in S1. the court has a discretion to make a disqualification order.

over 10 years for particularly serious cases (for example. An application from the Department of Trade and Industry for the disqualification of the directors on the basis of this behaviour was unsuccessful. two to five years for 'relatively not very serious' cases iii. continued to raise its working capital from deposits taken from customers to secure orders that were never to be met. Re Uno.ii. Uno. as they needed the money to keep the business going in the short term. Moreover. they decided not to do so. This case related to a group of two furniture companies which. The Secretary of State is required to maintain a register of disqualification orders which is open to public inspection (S18). Dillon LJ in the Court of Appeal divided the potential maximum 15 year period of disqualification into three distinct brackets: i. with leave to continue as a director of a named company. During this period one of the companies. on conviction on indictment ii. that behaviour had to be such as to make the person concerned unfit to be involved in the management of a company. Penalty for breach of a disqualification order Anyone who acts in contravention of a disqualification order is liable for either: i. in Re Sevenoaks Stationers (Retail) Ltd (1990). Period of disqualification With regard to the period of disqualification. In addition S15 imposes personal liability for company debts arising during a period when a person acts as a director while disqualified. or lacking in commercial probity. Although the directors were advised that they could have safeguarded the deposits by placing the money in a trust account for the customers. Secretary of State for Trade and Industry V Gill The operation of the CDDA1986 was considered extensively in Re Uno. Under the circumstances of the case the court found that the . then any person who consented or contributed to its so doing will also be guilty of an offence. In refusing the application. imprisonment for up to six months and/or a fine not exceeding the statutory maximum. Secretary of State for Trade and Industry v Gill (2004). Under S14 where a company is guilty of an offence under S13. on conviction summarily (S13 of the CDDA1986). with leave to act in some other managerial capacity but not as director (Re Cargo Agency Ltd (1992)). a middle bracket of between six and 10 years for serious cases not meriting the top bracket. where a director has been disqualified previously) ii. although in severe financial difficulties. as the company eventually went into liquidation. subject to conditions (Re Lo-Line Electric Motors Ltd (1988)) iii. imprisonment for up to two years and/or a fine. either under an order or while personally bankrupt. continued to trade while the directors investigated possible ways of saving the businesses. the court emphasised the fact that in order to justify disqualification there had to be behaviour that was either dishonest.

directors had pursued realistic opportunities to save the businesses and consequently were blameless for the eventual failure of the businesses and the loss to the customers. David Kelly is examiner for Paper F4 Back to top Share on emailEmail Share on printPrint Share on twitterTwitter Share on facebookFacebook Share on linkedinLinkedin More Sharing ServicesAdd This Last updated: 25 Apr 2012  ACCA ON THE WEB o o o o o o o Follow us on Twitter Find us on Facebook Join us on LinkedIn ACCA Mail ACCA Blogs ACCA TV ACCA Podcasts Qualifications at a glance ACCA Careers Foundation-level qualifications Find an accountant Explore our network ACCA Qualification Past exam papers myACCA Members  USEFUL LINKS o o o o  MOST POPULAR o o o o o         © 2012 ACCA Accessibility Legal and copyright Privacy Advertising Site map Contact us Media .

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