The culture of corporate enforcement has become a very real issue for directors. In the last two years in particular there has been an increase in the number of directors who have found themselves in the High Court facing applications to restrict or disqualify them for various breaches of the Companies Acts or their general duties as directors. A restriction or disqualification order obviously has extremely serious implications for a director and any company they are involved in. This article looks at the two relevant sections of the Companies Acts and the approach taken by the Courts.
The Company Law Enforcement Act 2001 requires a liquidator of an insolvent company to report to the Director of Corporate Enforcement and then to apply to the High Court for the restriction of each of the directors of the company, unless the Director of Corporate Enforcement has relieved the liquidator of the obligation to apply. If a liquidator does not do so he is guilty of an offence. The provisions relating to liquidators apply equally to receivers. Therefore, the likelihood of directors appearing in Court has increased significantly.
Section 150 of the Companies Act 1990 ("the Act") allows the Director of Corporate Enforcement, a liquidator or a receiver to apply to have a person who was a director or shadow director of an insolvent company within 12 months prior to its winding up, restricted from being appointed or acting in any way, whether directly or indirectly, as a director or secretary or being concerned or taking part in the promotion or formation of any company unless that company meets certain requirements relating to share capital. The names of restricted directors are kept in a register maintained in the High Court.
This does not apply where a person was a director simply because he was nominated by a financial institution as part of a credit facility (provided that the financial institution has not obtained a personal guarantee from a director of the company) or where a person is a director as nominee for a venture capital company in connection with a share purchase.
The application is based on an affidavit sworn by the liquidator setting out all the facts he considers should be brought to the attention of the Court for the purpose of determining whether the director has acted honestly or responsibly in relation to the conduct of the affairs of the company or whether there is any other reason for which it would...