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DIRECTORS DUTIES & LIABILITIES:
TOPIC 2
INTRODUCTION
• This topic considers the duties that a director owes to the company
...


• Directors have powers to take majority business decisions on behalf of the
companies
...

• Under the current rules, directors’ duties including duty to act in good faith to
the best interest of the companies; duty to avoid conflicts of interest; duty
not to profit from their offices, and duty of care and skill are enshrined in the
common law rules and equitable principles and also in statutes such as the
Companies Act 1985 (the 1985 Act) as amended by Companies Act 1989
and presently in the CA 2006
...
Very often, directors have to take
advice in these areas so as to ensure that they do not inadvertently breach
any duty enshrined in the case law
...

Companies Act 2006, which received Royal Assent on the 8th November
2006, codifies directors duties including the long established fiduciary duties
as well as the common law duty of care and skill into a statutory statement
of seven general duties
...

• Summarised below are the seven general duties set out in ss
...


TO WHOM DO DIRECTORS OWE THEIR DUTIES?
Page 1

Section 170 CA 2006: provides that the general duties of the company specified in
ss
...
(The general
duties also apply to shadow directors)
...
170(1) CA 2006:
Facts: The shareholders accepted an offer for the purchase of their shares by the defendants,
the directors of the company
...
The
shareholders claimed that the directors stood in a fiduciary relationship with them and the
purchase ought to be set aside for non-disclosure
...
It was stressed that to hold otherwise “would
place directors in a most invidious position, as they could not buy or sell shares without
disclosing negotiations, a premature disclosure which might well be against the best
interests of the company”
...
Further, the fact that the shareholders
themselves first approached the directors requesting the share purchase was material to the
court’s deliberations
...
[Rule in Foss v Harbottle]
...

It leaves the key question unanswered: what are the interests of the company?
o Do the shareholders constitute the company’s interest, or is a more pluralist
approach adopted whereby the company’s interests are aligned with those of
the shareholders, creditors, employees and the general public?
The above questions were cleverly answered in the case of Greenhalgh v Arderne
Cinemas Ltd:
• Evershed MR took the view that the phrase ‘the company as a whole’

does not…mean the company as a commercial entity, distinct from the
corporator: it means corporator as a general body”

GENERAL DUTIES OF DIRECTORS: CA 2006 PART
10:
There are 7 duties that directors must comply with:
1
...
171)
2
...
172)
3
...
173)
4
...
174)
5
...
175)
6
...
176)
7
...
177)

S
...
A
directors powers are normally derived from the company’s constitution,
i
...
its memorandum and articles of association
...


RE SMITH & FAWCETT LTD (1942) in which he explained that:
“Directors must exercise their discretion bona fide in what they
consider- not what a court may consider- in the best interests of the
company, and not for any collateral purpose
...
The consequences
of this doctrine are that the voting rights of majority shareholders, those that
control the company, may be adversely affected
...
The directors of Extrasure had transferred company funds,
some £200,000, to another company in the group, Citygate insurance
brokers Ltd (the parent company), to enable it to pay a creditor who
had been pressing for payment
...

The test for determining whether or not a power has been exercised for an improper
purpose came to the fore in this case
...
It is unnecessary
for a claimant to prove that a director was dishonest, or that he knew he was
pursuing a collateral purpose
...
It was
suggested by the parties that the court must apply a 3-part test, but it may be more
convenient to add a fourth stage
...
Identify the power whose exercise is in question
2
...
Identify the substantial purpose for which the power was in fact
exercised
4
...

For example: the directors may believe it is in the best interests of the
company to defeat a takeover by allotting shares to shareholders who they
trust to reject the bid, that will probably be viewed as improper exercise of the
power to allot shares as it was originally conferred to raise capital: not to
increase the voting rights of certain shareholders for some collateral purpose
...
Ampol &
Howard Smith made rival takeover offers to Miller
...
Ampol sought a
declaration that the share allotment was invalid as being am improper exercise of power
...

Legal Principle Both at first instance and appeal it was accepted that the directors were
not motivated by self-interest
...
The share issue was therefore invalid
...

2) Second, the substantial purpose for which the power was exercised should
be examined so as to determine whether the particular purpose was proper
or not
...


purpose was illustrated in the following case:
It is not sufficient for directors to act in what they believe is in the best interests of the
company unless they can also establish that their actions are within the scope of the
powers conferred on them
...


Page 4

HOGG V CRAMPHORN:
Facts: Mr Baxter approached the board of directors of Cramphorn Ltd, to make a takeover
offer for the company
...
So they issued shares so that they could outvote Baxter’s bid for majority control
...
Cramphorn
argued that the directors’ actions were all in good faith
...

Legal Principle: The court held that the new shares issued by the directors are invalid
...
The act could not be justified on the basis that the directors
honestly believed that it would be in the best interest of the company
...
In this case, the
director’s conduct was appropriately ratified by the company
...


Page 5

In summary, the decision in Howard Smith lays down that where directors exercise
a power with mixed motives the court will seek to determine the principal purpose of
their conduct
...
Berger J held that a director may resist a takeover so long as they
are acting in good faith, and they have reasonable grounds to believe that the takeover will
cause substantial harm to the interests of the corporation
...
The decision of Hogg was criticised by Berger J as laying down
the principle that directors have no right to issue shares in order defeat a takeover bid even if
they consider that in doing so they are acting in the company’s best interest
...

Berger J stressed that directors are entitled to consider the reputation, experience and policies
of anyone seeking to takeover the company and to use their power to protect the company if
they decide, on reasonable grounds, that takeover will cause substantial damage to the
company
...
The absence of reasonable grounds ‘will justify a finding that the directors were
actuated by an improper purpose’
...
On the
particular facts of Teck it was held that ‘the plaintiff has failed to show that the directors had no
reasonable grounds for believing that a takeover by Teck would cause substantial damage to
the interests of the company and its shareholders
...
(Bamford v Bamford)
...
171 and was
WEST COAST CAPITAL (LIOS) LIMITED (2008):
Facts: Tesco Holdings Ltd was prevented from obtaining complete control of Dobbies
Garden Centre PLC, in part, because a rival bidder, West Coast Capital (WCC), purchased
shares in the market at above the offer price
...
The new board of Dobbies announced that that
it would be not being paying dividends and proposed to raise capital by issuing new shares
...
994 CA 2006 (the unfair prejudice provision), on the basis that it was
highly unusual for company’s to cease to pay dividends when they have not suffered a poor
operating performance and so the court so the courts should infer a sinister intent
...

Legal Principle: On evidence the petition was unsuccessful
...
171 (b) was
subjective and that it was necessary to consider the motivation of the directors
...
172: DUTY PROMOTE THE SUCCESS OF THE
COMPANY:
Section 172 CA 2006 provides that:
(1) A director of a company must act in the way he considers, in good faith,
would be most likely to promote the success of the company for the benefit of
its members as a whole, and in doing so have regard (amongst other matters)
to—
(a) The likely consequences of any decision in the long term,
(b) The interests of the company's employees,
(c) The need to foster the company's business relationships with
suppliers, customers and others,
(d) The impact of the company's operations on the community and the
environment,
(e) The desirability of the company maintaining a reputation for high
standards of business conduct, and
(f) The need to act fairly as between members of the company
...

(3) The duty imposed by this section has effect subject to any enactment or
rule of law requiring directors, in certain circumstances, to consider or act in
the interests of creditors of the company
...

‘Success’ is not defined in the Act
...

However, it is suggested that a director will exercise the same level of
care,skill and diligence as he carries out any other functions in deciding which
factors he will take into consideration when making a decision subject to his
overall responsibility to the success of the company
...

Section 172(1) CA 2006:
The CLR (Commonwealth Law Reports) proposed that directors should promote
‘enlightened shareholder value’
...


Page 8

o

Developing the Framework Para 3
...

o The CLR therefore recommended that the duty should be so
formulated as to remind the directors that shareholder value depends
on the successful management of the company’s relationships with
other stakeholders
...
172 is based, was made by Lord Greene in RE
SMITH & FAWCETT LTD (1942) in which he explained that:
o “Directors must exercise their discretion bona fide in what they
consider- not what a court may consider- in the best interests of the
company, and not for any collateral purpose
...


Page 9

CHATERBRIDGE CORPN LTD V LLOYDS BANK LTD (1970):
Pennycuick J stated that the test for determining whether this duty has been
discharged ‘must be whether an intelligent and honest man in the position of a
director of the company concerned, could, in the whole of the existing
circumstances, have reasonably believed that the transactions were for the
benefit of the company
...

ITEM SOFTWARE (UK) Ltd V FASSIHI (2004):
Facts: Fassihi was employed as the sales marketing director of the claimants
...
He first unsuccessfully attempted to
procure the contract for RAMS International Ltd, a company he had established
for the purpose
...
Notwithstanding these breaches of fiduciary
duty; Item could not establish a resultant loss
...
It was therefore
critical to identify a further basis of liability to which Item’s loss of contract might
be attributed
...
On appeal the
existence in law of a duty to disclose misconduct came to the force
...

However, the objective considerations are hard to avoid:

The overarching nature of the s
...


Page 10

An obvious example of the breach of duty outlined in SUN TRUST was in the case

NEPTUNE (VECHICLE WASHING EQUIPMENT) LTD V FITZGERALD (No
2) (1995):
Facts: At a board meeting attended only by the defendant, the
company’s sole director, and the company’s secretary, it was resolved
that the defendants service contract should be terminated and that
£100,892
...

Legal principle: It was held that the defendant was not acting in what he
honestly and genuinely considered to be in the best interests of the
company but was acting exclusively to further his own personal
interests
...


of:

ENLIGHTENED SHAREHOLDER VALUE:
Enlightened shareholder value means that the directors act in the best
interests of the company that required the directors to maximise the value of
the corporation
...

EMPLOYEES:
Taking account of the interest of the employees has long been a statutory
requirement
...
309 CA 1985: the matters to which the directors of a company
are to have regard in the performance of their functions include
the interest the employees in general, as well as the interests of
its members
...
Enforced in the same way as any other fiduciary duty
owed to a company but its directors (either the company
had to sue for its breach or a shareholder had to bring a
derivative claim)
...
The second was that there was no certainty has to the
scope of the duty
...
When drafting the new CA 2006 a conclusion
was reached that the provision should be repealed on the basis that the

Page 11

directors should consider the employees interests only when promoting the
success of the company for the benefit of its members
...
247 CA 2006: does permit directors to make provision for the benefit of
employees and former employees of the company or any of its subsidiaries on
the termination or transfer of the whole or part of the undertaking of the
company or the subsidiary
...
247 states that the power can be
exercised even if it will not promote the success of the company in
accordance with s
...

Section 172(1) CA 2006:
CREDITORS:
Creditors do not appear in the list of factors contained in s
...

Creditors are found under s
...

▪ S
...

The concern of the creditors in this situation lies with ensuring that the
directors do not dissolve company assets, to which they look for payment of
their loans
...

The law in this area is still developing
...
The creditor
could therefore not bring an action directly against the director for a breach
of duty (transferring assets beyond the creditors reach)
...
212 Insolvency Act 1986
...
172 (3) is fiduciary in nature;
that, as with members, the duty is not owed to individual creditors but only to
the general body of creditors; and that for insolvent companies the duty is to
act in the best interests of the company requires the substitution of the word
‘creditors’ for the word ‘company’ in s
...

Whether or not the creditors need this additional protection is questionable
given fraudulent trading and wrongful trading provisions contained in the
Insolvency Act 1968 together with s
...


Page 12

While s
...

▪ Clearly this depends on the company’s solvency
o But identifying the point in time when a company is insolvent
(i
...
when debts cannot be met) is, in practical terms, fraught
with difficulty
...
173: DUTY TO EXERCISE INDEPENDENT
JUDGMENT:
S
...
This means that they must not fetter the exercise of their powers
or discretion - the no-fettering rule
...

However, they are not in breach of this duty if they act in accordance with:
• with an agreement duly entered into by the company that restricts the
future exercise of discretion by the directors, or
• In a way authorised by the company’s constitution

Page 13

Where the board is able to establish that it was in the best interests of the
company to enter into such an agreement, the duty would not be broken
...
In
return for this agreement the football club was paid a substantial amount
...
The court
disagreed and held that they had entered into the undertaking assessing the
significant benefits for the company and exercising their discretion properly
...

Judgement:
“directors are under a duty to act bona fide in the interests of their company
...
Such a rule could well prevent
companies from entering into contracts which were commercially beneficial to
them
...


Page 14

S
...
174 (1) provides that a director of a company must exercise reasonable
care, skill and diligence
...
174 (2) goes on to state that this means care, skill and diligence that would
be exercised by a reasonably diligent person with(a) general knowledge, skill and experience that may reasonably be
expected of a person carrying out the functions carried out by a director
in relation to the company, and
(b) the general knowledge, skill and experience that the director has
...

• To prove this point, it should be recalled that the early companies
frequently appointed directors by virture of social standings
...
214 of the IA
1986 in the context of a director’s wrongful trading
...

The subjective test requires a director to carry out his duty within the general
knowledge, skill and diligence he in fact possess
...

The concern of the courts was to frame the standard of care in terms that
were appropriate to company directors who, as commercial risk-takers,
should be held to the same performance standards as trustees
...
It was held that he did not share
responsibility for the bank’s heavy losses resulting from the irregular conduct of its
trustees and managers
...


Page 15

RE CITY EQUITABLE FIRE INSURANCE CO LTD (1925):
Concerning: The Duty of Care & Skill:
The early decisions were considered by Romer J in this case, in which he attempted to formulate a
definite criteria for the requisite duties of care, skill & diligence
...
By this method a
debt due to the company from a firm in which the chairman had an interest was considerably
reduced on the balance sheet by increasing the gilt-edged securities shows as assets
...
However, they
were held to liable mainly because this was one item in a very large audit
...
First, a director need to exhibit in the performance of his duties a greater degree of skill than
may be reasonably be expected from a person of his knowledge and experience
...
Second, a director is not bound to give continuous attention to the affairs of his company
...

3
...


The consequence of the decision in Re City has reached the stage of holding
directors accountable along the lines of traditional negligence principles
...

In modern times when the directors of companies are often experts in certain
fields, e
...
accounting, finance or engineering, a higher standard of
competence may now be expected of them in their own sphere
...

• S
...

• The section is based on negligence and the standard is objective
...

NORMAN V THEODORE GODDARD (1991):
Hoffman J accepted the counsel’s submission that the appropriate test was
accurately stated in s
...


In RE D’JAN OF LONDON LTD (1994) Hoffman LJ, relying on s
...
The effect
of s
...
However, subjective considerations will
also apply according to the level of any special skills the particular director may
possess
...
175: DUTY TO AVOID CONFLICT OF INTEREST
Page 17

Section 175 CA 2006 - duty to avoid conflict of interest - previously contained in Part
10 of the Companies Act 1985 and are quite complex
...

This duty applies to a transaction between a director and a third party in terms of the
exploration of any property, information, opportunity
...

This principle can be classified under the fiduciary duty of loyalty
...
Previously, shareholders’
approval is required to enable directors to enter into transactions with third parties
...
175(5) and (6) including who
can participate and vote on such authorisation are compiled with
...

On the other hand, it should be notes that the saving provision, i
...
, authorisation by
non-conflicted directors on the board goes some way towards easing the concerns
...


THE NON-CONFLICT AND NO PROFIT RULES:
S
...

Duty to avoid conflicts of interest are based on two equitable principles:
1
...
The no profit rule
The classical judicial formulation of the non-conflict duty was delivered by Lord

BRAY V FORD (1986): “It is an inflexible rule of a court of equity that a
person in a fiduciary position…is not …entitled to make a profit; he is
not allowed to put himself in a position where his interest and duty to
conflict
...
175 (2) CA 2006 reflects the equitable rule that it is immaterial whether the
company could take advantage of the property, information or opportunity which has
been diverted away from it by the misbehaving director
...
They took out leases on two more,
though a new subsidiary, to make the whole lot an attractive sale package
...
They did not
want to do that
...

Regal itself put £2,000, but could not afford more
...
They sold the business and made
a profit of nearly £3 per share, but then the buyers bought an action against the
directors, saying that this profit was in breach of their fiduciary duty to the
company
...

Legal principle: The HoL held that the defendants had made their profits “by
reason of the fact that they were directors of Regal and in the course of the
execution of that office
...


GULLIVER (1942)
...

The CA and the courts will tolerate directors being interested in transactions with the
company provided that certain disclosure and approval requirements are satisfied
...
175, is regarded as an asset belonging to the
company, which may not therefore be misappropriated by directors
...

Facts: The Toronto Construction Co
...
3 out of 4
directors and shareholders, Deeks, Deeks and Hinds fell out with Cook, who
was also a director and shareholder
...
,
the three directors formed a new company to take the contract, and so as to
exclude Cook
...
, to declare that the company
claimed no interest in the contract
...
The directors’ profit-making
represented a misappropriation of company property and was therefore not
ratifiable by the wrongdoers
...


Page 20

The scope of the corporate opportunities is very wide
...
The prohibition
against usurping corporate opportunity extends to situations where an opportunity is

IDC v Cooley:
Concerning: There should be no conflict between interest and duty + This case
considered the issue of fiduciary duties of a company director to a company and
whether or not a managing director had a duty to pass on information that he obtained
whilst he was the managing director and whether or not he was liable for the
remuneration he received as a result of taking advantage of this information:
Facts: Mr C was an architect employed as managing director of IDC
...
Mr C was told that the gas board did
not want to contract with a firm, but with him directly
...
They
accepted his resignation
...
IDC found out and sued him for breach of his duty of loyalty
...
So he was held accountable
for the benefits he received
...
Cooley was
under no fiduciary duty
...
That capacity was as managing director of the plaintiffs
...


presented to a director personally and not in his capacity as a director
...


Page 21

In determining whether or not a director has usurped a corporate opportunity,
Canadian and Australian courts will have regard to the line of business of a particular
company and, significantly, to have fides of the director whose conduct is being
PESO SILVER MINES V CROPPER (1966):
Facts: Peso’s board was offered the opportunity to buy 126 mining claims, some of which
were on land which adjourned the company’s own mining territories
...
Subsequently, the company’s geologist formed a syndicate with
the defendant and two other Peso directors to purchase and work the claims
...

Legal principle: The action as unsuccessful and the SC of Canada dismissed the appeal
by the company
...
They could therefore exploit the opportunity themselves
...


CANADIAN AERO SERVICES LTD V O’MALLEY (1973)- CANAERO:
Concerning: Corporate Opportunities; Wide commonwealth approach:
The wider approach in Peso was again picked up by the Canadian SC even though the defendant and
the directors in question were found labile
...
It was, in fact, unlikely that the company would
have won the contract in question
...
Further it held that Canaero did not have to
prove that it would have gained the contract or establish what profits there would have been had it
secured the contract
...
He stated that the court should give appreciation to all the circumstances
surrounding a particular breach including the director’s fides: the general standards of loyalty, good
faith and avoidance of a conflict of duty and self-interest…must be tested in each case by many
factors…Among them are the factor of position of office held, the nature of corporate
opportunity, its ripeness, its specificness and the director’s or managerial officer’s relation to
it, the amount of knowledge possessed, the circumstances in which it was obtained and
whether it was special or indeed even private
...


Page 22

QUEENSLAND MINES LTD V HUDSON (1978):
Concerning: Corporate opportunities:
Facts: Hudson was the managing director of Queensland Mines that had been negotiating with the
Tasmanian Government for mining exploration licences
...
Hudson
thereupon used his own resources to prove the value of the mineral deposits in his own name
...
Queensland Mines sought to make
Hudson liable to account for the profit
...
The company was fully informed that Hudson was
seeking the opportunity, having rejecting itself
...


If affirmation of the strict approach taken in cases such as Regal and Cooley
was found necessary, it is at least implicit in the CoA’s reasoning in
BHULLER V BHULLER (2003):
Concerning: Corporate opportunities:
Facts: Silvercrest (S), a company controlled by the two appellants, acquired a property, White Hall
Mill, at the time that they, along with other family members who included the respondents, were the
directors of Bhullar Bros Ltd (B Ltd)
...
However, before the purchase, B Ltd
...
The appellants resisted B Ltd
...

Legal principle: The Counsel for B Ltd countered with a submission based upon IDC V COOLEY:
“that a director may come under a positive duty to make a business opportunity available to
his company if it is in the company’s line of business or if the director has been given
responsibility to seek out particular opportunities or the company and the opportunity
concerned is of such a nature as to fall within the scope of that remit
...
The court’s reasoning affirms the counsel’s
preference for a broad, capacity-based approach as articulated in Cooley
...

BHULLER V BHULLER
...
175 (7) states that any reference in this section to a conflict of interest
includes a conflict of interest and a duty a conflict of duties
...
176: DUTY NOT TO ACCEPT BENEFITS FROM
THIRD PARTIES :
S
...
His being a director
b
...
175 and it
too will not be infringed if acceptance of the benefit cannot reasonably be
regarded as likely to give rise to a conflict of interest
...

The word ‘benefit’, for the purpose of this section is not defined in the Act
although during Parliamentary debates it was made clear that benefits cover
both monetary and non monetary, including for example, non executive
directorship and even corporate entertainment
...
Nevertheless, because it is not always clear whether certain benefits
will give rise to conflicts of interest, it is feared that directors might more likely
take advice on this area
...
175 (5) provides for a board authorization in respect of conflicts of
interest, this is not the case with this particular duty
...
180 (4)
...
176 (2) defines a third party as a person other than the company or its
holding company or its subsidiaries and thus s
...


Page 24

S
...

• Section 177 of the Act reflects s
...

• However it goes further than the requirement of s
...
Further, disclosure must be made where
a director is considered ‘ought reasonably to be aware of’ (s
...
Disclosure also extends to a person connected
with the director, for example, his wife and children
...


SELF-DEALING DIRECTORS:
The underlying rationale of the self-dealing rule which prohibits a director from
being interested in a transaction to which the company was a party was
ABERDEEN RLY CO V BLAIKE BROS (1854):
Facts: The company had contracted with John Blaike for the supply of iron
chairs
...

Legal principle: It was held that non one having a fiduciary duties to
discharge, shall be allowed to enter into the engagements in which he
has, or can have, a personal interest conflicting, or which possibly, may
conflict, with the interests of those whom he is bound to protect
...
177 CA 2006: which provides that if a
director is in anyway, directly or indirectly, interested in a proposed
transaction or arrangement with the company, he must declare that the
nature and extent of the interest to the other directors
...
182 CA 2006: applies to cases where the director has an interest in the
transaction after ‘it has been entered into by the company’
...

The reason why the common law tolerated such relaxation of the rule was
explained in the case of BOULTING:
• Legal principle: “Directors
...
”
• The principle difference between s
...
182 CA 2006 is that
s
...
182 carries criminal sanctions
...

• The statutory statement of general duties replaces the common law
rules and equitable principles
...

• However, the Act makes it clear that the statutory general duties are to
be interpreted and applied in the same way as the existing common
law rules and equitable principles
...

• Further, it will be a challenge to the court to interpret the new duties
using existing case law
...

• It has been suggested that this may well result in more claims being
brought against directors in the short term as dissatisfied
shareholders… (check slide 14 and fill in the gap)
• The uncertainty can only be eased when the court sets out
‘perimeters’ in its interpretation of the duties
...


Page 26

DISQUALIFICATION OF DIRECTORS
• A disqualification order is made by the court under the Company Directors
Disqualification Act 1986
...

• Without specific permission of the court, it disqualifies a person from:
1) acting as a director of the company
2) taking part, directly or indirectly, in the promotion, formation or
management of a company
3) being a liquidator or an administrator of a company
4) being a receiver or manager of a company’s property
• An order for disqualification can be made under a number of different
sections of the Company Director Disqualification Act 1986
...

• For orders made against an unfit director of an insolvent company, there is
a minimum period of two years and a maximum of 15 years
...
An undertaking may be
given to the Secretary of State which has the same effect as a
disqualification order, but do not involve court proceedings
...
The
Secretary of State has to decide whether it is in the public interest to seek a
disqualification order
...

• Examples of conduct which may lead to disqualification include:
- Continuing to trade to the detriment of creditors at a time when the
company was insolvent
- Failure to lee proper accounting records
- Failure to prepare and file accounts or make return to Companies House
- Failure to submit tax returns or pay over to the Crown tax or other money
due
- Failure to co-operate with the OR/IP
...
The directors will have the opportunity to give the
court explanations or reasons for their actions - but may do so by a
statement of truth (a written consent of the relevant acts which is sworn on
oath of affirmed , usually before a solicitor)
...
The court will then decide
Page 27

whether the conduct makes the directors unfit to act in the management of a
company and, if so, for how long they should be disqualified
...

• At any stage in these proceedings you may give an undertaking to the
Secretary of State that has the same effect as a disqualification order and
will put a stop to the court proceedings
...
Those
who become directors of limited companies should:
– carry out their duties with responsibility; and
– exercise adequate skill and care with proper regard to the
interests of the
company’s creditors and employees
...
The CDDA applies not just to persons who are formally
appointed as directors but to those who carry out the functions of
directors
...

– More than 9,600 disqualification orders have been made
because of unfit conduct in failed insolvent companies since
1986, for periods up to the statutory …
...


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Who brings the proceedings in relation to a failed company?
– The proceedings are brought by the Secretary of State for Business,
Innovation & Skills or, usually in compulsory winding-up cases, by the
Official Receiver at the direction of the Secretary of State
...

What is the likely period of disqualification?
– The minimum period of disqualification is 2 years and the maximum
15
years
...

How do disqualification proceedings begin?
– If there is any unfit conduct, then the liquidator, administrative
receiver,
administrator or Official Receiver has a duty to send the
Secretary of State for Business, Innovation & Skills a report on
the conduct of all directors who were in office in the last 3 years
of the company's trading
...


What type of conduct is reported to the Secretary of State?
– Examples of the most commonly reported conduct are:
– allowing the company to continue to trade when it was unable to pay its
debts;
– failure to keep proper accounting records;
– failure to prepare and file accounts or make returns to Companies House;
– failure to submit returns or pay the Crown any tax due
...
The matter is heard, and
decided by the court, unless the Secretary of State accepts a disqualification
undertaking from a director
...

– A disqualification order usually carries with it an order to pay the costs and
expenses of the Secretary of State or the Official Receiver or
both
...


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