This snapshot, taken on 09/07/2011, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
|
|||||||
|
Insolvent Companies Note – the following information refers to investigations into companies which have entered into formal insolvency proceedings e.g. administration, administrative receivership and voluntary liquidation in England, Wales and Scotland. For information on investigations into live companies click here.
What does The Insolvency Services’ Investigations and Enforcement Service do? We investigate, following complaints or other intelligence, corporate abuse where there is suspicion of misconduct; We investigate reports of misconduct by company directors from insolvency practitioners acting under appointments; and We investigate misconduct by company directors, bankrupts or individuals subject to debt relief orders in cases handled by the Official Receiver. We also secure remedies, including the institution of civil proceedings where this is in the public interest and we report allegations of criminality to prosecuting authorities (mainly to The Department for Business, Innovation and Skills)
The Law We fulfill a range of statutory functions and exercise powers and duties on behalf of the Secretary of State from the Insolvency Acts 1986 and 2000, the Company Directors Disqualification Act 1986 and the Companies Act 1985 as well as from a range of secondary legislation relating to these acts. The Company Directors Disqualification Act 1986 (CDDA) seeks to maintain the integrity of the business environment. Those who become directors of limited companies should:
The majority of directors do this effectively, but the CDDA is a powerful tool against those who abuse the privilege of limited liability. The Act applies to not just those formally appointed as directors, but also to those who carry out the functions of directors. The court can make disqualification orders in relation to:
It is a criminal offence to breach a disqualification order or undertaking without permission of the court and penalties range from a fine, to up to two years in prison. Any breach renders the individual personally liable for the companies debts incurred during the breach. Its officers and managers can also be punished as if the order applied to them personally.
Who can Investigations and Enforcement Services investigate?
We can investigate companies which have entered into
formal insolvency proceedings e.g. administration, administrative
receivership and voluntary liquidation in England, Wales and Scotland.
It is the Insolvency Practitioner who has been appointed in these
proceedings who is initially responsible for dealing with any
complaints. They then have a duty to report the Secretary of State
under the Company Director Disqualification Act 1986. We can investigate directors and undischarged bankrupts (in England and Wales) who breach the terms of disqualification orders/undertakings, bankruptcy restrictions orders/undertakings, debt relief restrictions orders/undertakings. We can also exercise powers to investigate companies under the Companies Acts. For information on investigations into live companies click here.
How are company directors investigated? Investigations can be made into the behaviour of company directors, those acting as company directors and also shadow directors. On completion of an investigation the investigator will submit a full report to an independent authorising section. That section acts on behalf of the Secretary of State in considering whether the case for disqualification has been made out, and whether it is in the public interest to apply to the court for a disqualification order. This section then can gives an authorisation to proceed in appropriate cases. Where authorisation has been given to proceed, the case is referred to the Defendant Liaison Team who write to the directors to advise them of the intended disqualification action, and to give them the opportunity to negotiate a disqualification undertaking. This has the same effect as a disqualification order made by the court. If the director does not offer an undertaking or does not produce new evidence sufficient to withdraw the action, court proceedings are issued to seek a Disqualification order under the Company Directors Disqualification Act 1986 (CDDA). Complaints about a company that is in administration, administrative receivership and voluntary liquidation, may be considered by Company Investigation officials. However concerns should first be raised with the Insolvency Practitioner responsible for the insolvency as they may be best placed to deal with the issue. Insolvency Practitioners dealing with administration, administrative Receivership and voluntary liquidation are required to report any unfit conduct to the Secretary of State who then decides whether to investigate further with a view to disqualification. Please note – the CDDA (1986) does not apply where a company voluntary arrangement has been agreed with creditors.
There are certain key breaches of the law that we are particularly interested in finding out about. These are:
What action can be taken against a director? Director Disqualification - When a company has entered into insolvency proceedings, a report is submitted to the Secretary of State by the Insolvency Practitioner detailing the conduct of all directors who were in office during the last three years of the company’s trading. The Secretary of State decides whether it is in the public interest to seek a disqualification order. Examples of conduct which may lead to these include:
A disqualification order is made by the court under the Company Directors Disqualification Act 1986 (CDDA). It is a civil, not a criminal action. The Act not only applies to a person formally appointed as a director, but also to those who have carried out the functions of a director and to shadow directors. Without specific permission of the court, it disqualifies a person from:
The Insolvency Service has two years from the first insolvency of the company in which to apply for disqualification i.e. the date from:
The period can be extended at the discretion of the court. An order for disqualification can be made under a number of different sections of the CDDA and will specify the period of disqualification. There is a minimum of 2 years and a maximum of 15 years for orders against an unfit director of an insolvent company. The ban on being a director applies to all registered and unregistered companies formed in England, Wales, Scotland and Northern Ireland. It also applies to foreign companies registered in the UK, building Societies, incorporated friendly societies and NHS foundation trusts. Disqualification Undertakings Introduced in April 2001 these are the administrative equivalent to a disqualification order. A director can offer a disqualification undertaking to the Secretary of State. A disqualification undertaking has the same effect as a court order, but does not involve court proceedings.
To find out whether a director has been disqualified,
click the link below Alternatively you can obtain details from:
The Registrar of Companies
How do I complain about a director acting in breach of a disqualification order/undertaking or about an individual in breach of bankruptcy/debt relief/restrictions? If you are making a complaint about a company director, please make sure you have read the section Who can Investigations and Enforcement Services investigate? Having read this, if you feel you wish to continue with your complaint there are various ways to do so: The preferred method is by completing our on-line Breach Questionnaire hyperlink. We will acknowledge receipt of your complaint as soon as we receive it. You can also contact us by email, post, or by telephoning our Investigations Hotline number and leaving your details.
Submit a complaint by email:
Submit a complaint by post: Submit a complaint via our Investigations Hotline: Dial 0845 601 3546. This is a 24 hour facility which allows you to leave your contact details so we can acknowledge your contact and send you the appropriate questionnaire. You should note that we do not routinely return calls. It is important that you provide as much information as possible and keep hold of any supporting documentation as this may be requested at a later date. Although you can make a complaint anonymously there is no real benefit and it would then be difficult for further information to be obtained from you should it be required.
I am a director who has been/is being disqualified
What happens leading up to and after the disqualification is made? If a director does not respond, or a disqualification undertaking cannot be agreed, the Insolvency Service will send a report on the director(s) conduct to the court forwarding a copy to each director. The director/s can then explain their actions through a Statement of Truth. There may also be similar statements provided by other people e.g. company bankers, accountants etc., presented as evidence to support the case for or against the directors. The court will then make a decision as to whether the conduct makes the directors unfit, and if so, for how long they should be disqualified. If a director does not respond, or a disqualification undertaking cannot be agreed, The Insolvency Service will send a report on the director(s) conduct to the court forwarding a copy to each director. The director/s can then explain their actions through a Statement of Truth. There may also be similar statements provided by other people e.g. company bankers, accountants etc., presented as evidence to support the case for or against the directors. The court will then make a decision as to whether the conduct makes the directors unfit, and if so, for how long they should be disqualified. The order or undertaking will be registered at Companies House which monitors new directorships and will provide details of disqualified directors on request. The order, or undertaking, does not prevent a disqualified director from having a job with a company, nor does it prevent sole trading or being in partnership with others. However without court permission it does prevent a person:
It also means that a disqualified director cannot instruct other people regarding the running of a company, and they cannot act as an Insolvency Practitioner. If an order or undertaking is breached, the Insolvency Service will report the breach to the Department for Business Innovation and Skills (BIS) who will investigate and decide whether to launch criminal proceedings. Penalties range from a fine to up to two years imprisonment. Any breach will also render the disqualified director personally liable for any debts incurred by the company during the period of the breach. If the order has been made against, or the undertaking given by a corporate director and the corporation breaches the order or undertaking, then its officers or managers can be punished as if the order or undertaking applied to them personally.
While the order or undertaking is in force, it stops you acting as if you were a director. So you cannot avoid the order or undertaking by simply changing your job description. The order or undertaking also means that you must not get other people to manage a company under your instructions. The order or undertaking does not stop you from having a job with a company, but unless you have court permission it does stop you:
The order or undertaking does not stop you carrying on business as a sole trader or in partnership with others but, unless you have court permission, you must not be a member of or be concerned or take part in the promotion, formation or management of a limited liability partnership in relation to a company formed in England and Wales, or in Scotland. You must not do any of the prohibited acts in relation to a foreign company if
You must not do any of the prohibited acts in relation to a building society or an incorporated friendly society. You must not hold various other offices, such as the trustee of a charity: always take professional advice first.
What will happen if I contravene an order or undertaking? You are then committing a criminal offence and you could go to prison for up to 2 years and face a fine. The Insolvency Service operates a 24-hour telephone hotline to enable the public to report breaches of these orders and undertakings. If you contravene the order or undertaking, you could also become personally liable for any debts of the company which it incurs while you contravene the order or undertaking. Anybody who actions your instructions may also be personally liable. If the order has been made against, or the undertaking given by, a corporate director, and that corporation contravenes the order or undertaking, then its officers or managers can be punished as if the order or undertaking applied to them personally.
Can I ask for permission to act in a way prohibited by the order or the undertaking? You can ask the court for permission to become a director of a company or do anything else that the order or undertaking prevents. However, the court cannot give you permission to act as an insolvency practitioner. You need to satisfy the court that you have a reasonable need to do what you are asking - not just that you want to do it. You also have to satisfy the court that, if it gives you the permission you want, the public will be adequately protected. The court may require safeguards and may impose conditions on you. If you want to ask for permission, you will need to make a formal application to the court. Insolvency Service Publications: Company Directors Disqualification Act 1986 and Failed Companies Company Directors Disqualification Act 1986 and Disqualified Directors |
|||||||
|
|
|||||||
