Dean Phillips of Kangs Solicitors looks at the potentially significant financial penalties for those who find themselves subject to Company Director Disqualification Proceedings which can be imposed in addition to the existing restraints preventing future involvement in the management, promotion or formation of companies.
Compensation Orders | The New Legislation
Section 110 of the Small Business, Enterprise and Employment Act 2015 which inserted s.15A into the Company Director Disqualification Act (‘the CDDA Act’) came in to force on the 1st October 2015.
This Section creates a new power which allows the Secretary of State to apply for a Compensation Order within 2 years of the passing of a Company Director Disqualification Order.
Section 15A(3)(b) of the CDDA Act allows the Secretary of State to direct that a person who is subject to a Director Disqualification Order or Disqualification Undertaking may also be made subject to a Compensation Order where their conduct:
“…has caused loss to one or more creditors of an insolvent company of which the person has at any time been a director”
The Previous Position | Kangs Solicitors Fraud Team
Disqualified directors may have become financially liable in the event that the liquidator commenced proceedings under s.212 – 214 Insolvency Act 1986 (which included fraudulent trading and wrongful trading.
A claim would, typically, be limited to cases of fraudulent or wrongful trading and would have been brought in self-funded litigation by the liquidator.
Such an action would have been for the benefit of the creditors as a whole with the liquidator having to carefully balance the significant costs of litigation against the potential amounts recoverable.
When Can Compensation Orders be imposed in Director Disqualification Proceedings?
This new power granted to the Secretary of State to apply for Compensation Orders in respect of loss caused to one or more creditors will significantly widen the category of disqualified directors susceptible to being held financially accountable for losses arising from their conduct.
As there are likely to be creditors who have suffered a loss in most cases following a company’s liquidation, Compensation Orders are likely to be imposed on a regular basis especially as one of the creditors is likely to be HMRC.
In view of the potential imposition of a Compensation Order any director faced with Disqualification Proceedings or who is considering offering an Undertaking must be alive to the impact of such an Order.
Commencement date for Compensation Orders | Solicitors For Directors
A Compensation Order can only be issued in respect of conduct that has occurred since October 2015.
Recent Cases of Company Director Disqualification | Kangs Solicitors
What Can We Do To Help You? | Director Disqualification Solicitors
If you find yourself the subject of an Insolvency Service investigation or are faced with the prospect of Director Disqualification Proceedings, we are here to help you.
We will advise you how to:
- Complete the initial Questionnaire from the Insolvency Service
- Conduct your interview with the Insolvency Service
- Make written representations to the Insolvency Service
- Respond to the offer of a director disqualification voluntary Undertaking
- Defend any court proceedings brought by the Insolvency Service
How To Contact A Specialist Director Disqualification Solicitor
The Director Disqualification team at Kangs Solicitors can be contacted through one of the following: