Three in four 'dodgy' directors go unpunished

20th October 2009 15:03

As many of you will be aware, when a company enters into Insolvent Liquidation, Administration or Administrative Receivership then it falls to the appointed Insolvency Practitioner (“IP”) to review the company records and assess the conduct of the directors.

A recent survey by our trade body R3 showed that of the 4,752 adverse reports sent to the Insolvency Service, detailing unfit conduct by the directors, only 1,252 directors were disqualified or about 26%. Six years ago 45% of directors were disqualified. Bear in mind, however, that in the first half of 2009 there were 10,169 Liquidations and 2,338 Administrations.

R3 President Peter Sargent says “One in four reports resulting in a disqualification is simply not a high enough strike rate. The Insolvency Service does a good job to get the disqualifications it secures but clearly needs additional resources to pursue more cases.”

For those of you who are not aware, under the Directors Disqualification Act 1986 the Insolvency Service has two years to take an action against unfit directors and can seek a court order to disqualify them from taking any other directorships for a period of 3 to 14 years. Most commonly this is for trading whilst insolvent and the average disqualification period is six and a half years.

Peter Sargent concludes: “We have urged both Government and the opposition to consider introducing compulsory education for disqualified directors. Using a driving analogy, those caught speeding are encouraged to undertake a speed awareness course. Greater publicity for cases the Insolvency Service successfully prosecutes could also act as an additional deterrent, as well as more resources to police those who have been disqualified. Otherwise some ‘dodgy’ directors will simply slip through the net and be allowed to set up shop somewhere else.”

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