The Department for Business, Innovation and Skills commenced a consultation process last year, culminating recently in 2014 with proposals for legislative change. Here, we examine one aspect — proposed amendments to the Company Directors Disqualification Act 1986 ("CDDA").

Driver Behind Proposals

With corporate governance and regulation at the fore of an international political agenda, the current government appears minded to further strengthen the regulatory regime when it comes to directors' duties, liabilities and enforcement.

In looking to overhaul the current legislative framework, the aim is to inject further transparency and accountability into the business community. Despite an already strong directors' disqualification regime, part of the proposed changes would see the Secretary of State and courts take into account a wider range of matters when assessing the fitness of an individual to hold a UK company directorship.

Overseas Misconduct

Considering the globalised commercial environment, there is a view that the CDDA does not adequately assess the conduct of overseas company directors who hold, or look to hold, UK company directorships.

In particular, previous director disqualification in a foreign jurisdiction currently has no bearing when considering an individual's fitness to hold that position in the UK.

Part of the proposals would see the Secretary of State being able to commence CDDA proceedings whenever an individual director has been convicted of a serious offence in connection with the promotion, formation or management of a company overseas - with the option of action being taken before that individual has even commenced as a UK director.

Also proposed, courts will be required to consider overseas misconduct when hearing disqualification proceedings. These proposals offer safeguards and seek to preserve the integrity of corporate directorships in the UK.

Next Steps

These proposals have generally received support from the UK business community at large. Obviously, there is still much to play out on the legislative front as these proposals are debated. That said, in an increasingly regulated global environment, it is prudent for local and overseas directors to familiarise themselves with, not only a changing landscape when it comes to directors' duties, liabilities and enforcement, but also the wider corporate governance proposals.

Some Other Key Proposals:

  • Increasing the time limit for instituting CDDA proceedings from two years to three years from the earliest insolvency event;
  • An ability for courts to make compensation orders against disqualified directors where creditors have suffered identifiable loss from director misconduct;  Liquidators and administrators will be permitted to assign causes of action that currently only they have the right to pursue;
  • Increased streamlining of regulatory regimes with the directors' disqualification regime, ensuring there is consideration of the full picture and economy-wide bans where appropriate; and
  • An enhanced ability for the Insolvency Service to share investigative information with other regulatory or enforcement bodies.

Also, the government had intended to address nominee directors acting as a 'front' with proposals that made it a criminal offence for directors to take steps to divest their powers. Instead, the government has proposed to develop a system linked to director registration to increase awareness of directors' duties and liabilities - making it clear that any legislative breaches will be considered in disqualification proceedings.

"These measures will protect the British economy and our reputation as a good and fair place to do business by banning directors who have already been convicted of offences overseas from running British companies."

- Vince Cable, Secretary of State for BIS

The full government response is available online at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/304297/bis-14-672-transparency-and-trust-consultation-response.pdf

Originally published August 2014

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