Guidance Notes for the Completion of Statutory Reports and Returns

These notes are important and should be read before completion of any report or return under section 7 of the Act.

When reporting to the Secretary of State, you should have regard to the reporting rules and to Schedule 1 to the CDDA which lists certain matters to be considered by the Court in determining whether the conduct of a director in relation to the affairs of a company, or companies, makes that person unfit to be a director of companies generally.  The list is not exhaustive. The decision whether to initiate disqualification proceedings is made by the Secretary of State if it appears to be in the public interest.

The Secretary of State considers the matters of unfitness reported, alongside any matters reported on previous occasions and any other relevant information available.

When forming a view of whether conduct is unfit, you are asked not to be pedantic about isolated technical failures, for example, the occasional lapse in filing annual returns etc., but to be objective about each director's conduct.  Please also remember that you need only consider matters of conduct based on information you acquire in your normal duties and by reference to the books and records available; you are not obliged to make investigations which would not otherwise be necessary for the purposes of the administration.

The Council of the Society of Practitioners of Insolvency (SPI) has issued Statements of Insolvency Practice (SIP), two of which you should have particular regard to when discharging your reporting duties under the CDDA. A summary of the key points from SIP2, "A liquidator's investigation into the affairs of an insolvent company", is in Appendix 1 to this guide.  You should also consider SIP4, "Disqualification of directors".

Section 7(4) of the CDDA says that you have a duty to provide the Secretary of State or the Official Receiver, with all such further information (including relevant books, papers and other records) as may reasonably be required to support an application.

If proceedings begin, you (or, if you prefer, a member of your staff with day-to-day responsibility for the insolvency) will be asked to make an affirmation or swear an affidavit, and may be called to give evidence in Court.  In cases before the Scottish Courts, you (or a member of your staff) will need to attend in person unless the proceedings are  unopposed.

2.2 What is the role of the Disqualification Unit?

In cases based on information from Practitioners, the claimant for a disqualification order is the Secretary of State for Trade and Industry.  The Disqualification Unit of The Insolvency Service, based both in London and Edinburgh, is the administrative arm of the Secretary of State for applications under Section 6 of the CDDA.  The CDDA contains other provisions which enable disqualification applications to be made, but the Unit solely deals with those applications based on unfitted conduct reports from Practitioners and Official Receivers.

On receiving your report, the Unit’s Central Vetting Section considers it carefully. This Section is responsible for determining whether, on the face of things, there is sufficient unfit conduct for it to be in the public interest to seek disqualification; and if so, from reading the report and any other information which the Unit has, whether adequate evidence appears to be available.   In conjunction with you and your staff, the Unit then either:

• prepares an affidavit (or draft report in respect of Scottish companies) for you to consider and eventually swear or affirm; or

• allocates the report to the local Official Receiver who carries out the same duties, although always under the general direction and final authority of the Unit. 

The Unit arranges for legal input from the Treasury Solicitor or, more usually, local solicitor agents, employing Counsel when needed. An application is taken through the Courts by the Treasury Solicitor, the local solicitor agents, or the Official Receiver.

2.3 How does the Unit decide when to apply for disqualification?

Appendix 3 gives a flow chart summarising the decision-making process. The main points are:

• Every report is considered on its own merits.

• If the Unit considers that the director is unfit to be concerned with the management of a company, the Secretary of State applies for disqualification in the public interest.

• The evidence must be sound and of substance. The Courts regard disqualification as a severe restriction on the rights of the individual. So the Secretary of State must be satisfied that there is a reasonable prospect of success.   It is not public policy to seek disqualification based on unsubstantiated assertions, presumptions or assumptions, or a general feeling of "unhappiness" about the conduct of the director, or the circumstances surrounding the failure of the company.

2.4 Late reporting

The CDDA says that the Court may allow the Secretary of State to make applications outside the statutory two-year period. But several judicial decisions have made it clear that such leave will not be readily granted and that the Secretary of State must show good reason for leave to be granted. In assessing whether there are good grounds for granting leave, the Court will consider the length of delay, the reasons for it, the strength of the case and the degree of prejudice to the defendants.

Experience shows that the late submission of an unfit conduct report will not itself be a "good ground", so it is vital to send your reports as soon as the information is available, as required by section 7(3) of the CDDA. An interim return must be sent within six months of the relevant date laid down in rule 4(4) of the reporting rules if you have not made a report under section 7(3) within that period covering all the persons mentioned in rule 4(2). If you send an interim return, you are strongly encouraged to send a report or final return within a further three months. If you need longer than this, please contact the Unit to discuss the matter.

If you are not sure what kind of report to send, please contact the Unit’s Central Vetting Section for advice and technical guidance. In exceptional circumstances, where urgency seems paramount, the Unit may agree that an "outline" report is acceptable so that enquiries can begin as soon as possible.

The two-year period within which proceedings must be issued under section 6 of the CDDA runs from the earliest insolvency event affecting the company.  If there has been such an earlier insolvency event, you should send your reports as soon as reasonably possible or contact the Central Vetting Section if there is likely to be any delay.

[ CONTENTS ] [ PART 1 ] [PART 2] [ PART 3 ] [ PART 4 ] [ PART 5 ] [ PART 6 ] [ APPENDICES ]