Restriction And Disqualification

Front 1

Restriction

Back 1

Companies Act 1990 introduced measures to restrict/disqualify unscrupulous directors to stop them just starting up a new company.

Aim is to protect public from their future company dealings. Not punitive, but in practice quite punitive. Browne-Wilkinson VC in Re Lo-Line Motors Ltd

Previous conduct must show them unfit to hold office, represent a danger to potential investors/traders.

Front 2

Restriction requirements section 819

Back 2

1. After insolvency, cannot act as director/secretary/promoter UNLESS you meet requirements set out in subs 3.

2. Restricted UNLESS

a) Acted honestly and responsibly(both before and after insolvency)
b) co-operated with liquidator in relation to winding up conduct
c) No other reason to justify restrictions from subs 1. Onus for proving this is on the director.

3. Requirements for sect. 1.:

a) Company shall have allotted share capital of over 500k if public, 100k if private.

Front 3

Elaboration

Back 3

Courts cognicent that failure is a part of commercial life, does not mean unacceptable behaviour from the directors. Not a "witch hunt". Business Communication Ltd v Baxter & Parsons

Front 4

La Moselle Clothing v Soualhi 5 Stage Test

Back 4

1. Extent to which director has(not) complied with obligations set out by Companies Acts.

2. E T W their conduct can be regarded as so incompetent as to amount to irresponsibility

3. E T W responsible for insolvency

4. ETW responsible for net deficiency of assets disclosed

5. ETW director has shown lack of commercial probity/want of proper standards.

Front 5

Tax

Back 5

Failure to pay tax properly is often an indicator. Does it automatically constitute irresponsibility? No. Re Digital Channel Partners Ltd.

Need something more.

Front 6

Non-executive director's liability

Back 6

Re Tralee Beef & Lamb; Kavanagh v Delaney.

Inactivity does not constitute acting responsibly.

Re Mitek Holdings. Fennelly J implied there's differences between executive and non-executive. Executive owe greater duty, but they rely on the advice of non-executive. Non-executive has duty to familiarise themselves with the running of the company.

Front 7

Co-operating with liquidator

Back 7

Re CMC(Irelad) Ltd; Fennel v Carolan & Cosgrave

Now part of the 2014 Act

Front 8

Declaration of restriction

Back 8

1- Prevent from being director/secretary/involved in formation/promotion of any company for five years unless company is adequately capitalised

2- Public companies- capital requirement of 500k

3- All other companies- 100k

Front 9

Voluntary Restrictions

Back 9

s 852.

Front 10

Shadow Directors

Back 10

Fyffes v DC

Can be other companies.

Front 11

Disqualification Order

Back 11

S 839.

Automatically disqualified for any offence specified, mainly fraud.

S 842- Discretionary.

Front 12

Difference between disqualification and restriction orders

Back 12

Scope much wider, and they cannot have any involvement in the company after.

The disqualification period is automatically 5 years if they committed a criminal offence, but it can be less when it’s up to full discretion. Has been theorized that it should be in brackets, it’s usually.

Front 13

Burden of Proof in disqualification orders

Back 13

Penal nature makes it difficult to achieve these. Re Kentford Securities Ltd.

Applicant must satisfy court that one of the provisions under 839 or 842 arises. If latter, court may then exercise discretion.Reversed compared to restriction orders, where the burden of proof is shifted to the director.

Civil standard of Proof: Re TMC Mediaworks

Front 14

Voluntary Disqualification

Back 14

s 850