In last week’s blog I talked about the actions Creditors could take in relation to the Companies Act 2006.
This week, I’ll be covering why the CDDA (Company Directors Disqualification Act 1986) was brought into contention, and the restrictions that can be imposed on fraudulent directors.
This 2014 article from the Financial Times shows the type of nonfeasance is unlikely to be tolerated.
Why the CDDA
Thankfully, the vast majority of Directors have a fiduciary duty to act in the best interests of the company that they are representing.
The good value that the Shareholders, it’s Staff and the overall running of its business will coincide with their decision making.
Sometimes, as is human nature, the Directors may get it wrong, and get away with just a slap on the wrist.
… But, what about those individuals who abuse their Directorship time and time again?
The Act was bought about, so as to make them culpable for their actions.
Depending on the severity of the Director’s actions, the powers followed through by the CDDA, the sanctions placed on these individuals.
So that these wrongful or fraudulent Directors can be taken out of circulation.
How does it work, and at what level?
Many of these investigations aren’t carried through, but per my previous article, it is worthwhile keeping abreast of them and request further investigation, depending on the seriousness of an offence.
Essentially, the CDDA allows an Investigatory body, such as the OfT, in conjunction with the Official Receiver (O/R) to impose certain conditions upon Director in the event of bankruptcy/insolvency and/or any other fiduciary breached duty.
It’s likely that investigations into failed companies will take an enormous amount of time.
Particularly if vast sums of monies had at any one point changed hands or gone through at a transaction undervalue, or if proceeds were being siphoned out of the company.
Also, if anything else that marks itself out as ‘austere’ as some of the above examples, then it is worthwhile noting that either the O/R, or a Court Appointed Insolvency Practitioner will impose certain measures to avoid previous Directors trading.
What kind of Restrictions can they place on a Director?
The most severe cases, Directors are restricted from trading for a period of up to 15 years,
And/or can be punishable by not only a fine, but a criminal sentence too.
Here is a list of some of the Orders, that the O/R can impose on those who have entered into some form of bankruptcy/insolvency:
BRO – Bankruptcy Restriction Order
The kind of actions that the Investigating Officer would make and report to the Courts that Creditors would seek to receive some sort of redress for:
- Paying off some creditors, whilst deliberately avoiding others.
- Carrying on in business, but neglecting the affairs of your overall business – e.g. Going out to make more sales, whilst running up bad debts.
- Being aware that your business is unlikely to survive, but still continuing on in this.
- There are other reasons too, as advised above.
BRU – Bankruptcy Restrictions Undertaking
This is where, upon the conclusion of the Courts, an Undertaking is imposed upon you.
Like that of a bankrupt individual, you are likely to be subject to certain conditions that would not allow you to trade as a Director, and/or hold a bank account over a period of time.
… depending on the type of misconduct that as a Director, would have been previously liable for.
Here are a number of misconduct examples taken from the Public Register:
When Directors paid their renumeration out, when they themselves were aware that major creditors were owed a total of a six figure sum, resulted in a Restriction to act as a Director for a period of up to 6 years.
Proper accounting records were not kept at the Registered Office address, resulting in a breach of fiduciary duty, and a sanction of 6 years placed under the CDDA on this particular director.
7 year sanction was placed on one Company Director who was aware of issues faced by his company, yet much to the detriment of the company creditors, continued to trade the business, without seeking proper advice.
Generally, it appears that misleading creditors or carrying on business when the Directors are aware that the Business in itself is not trading sufficiently well, would mean that they themselves would have to seek independent insolvency advice.
If any Director feels that their business is not doing too well, don’t let it reach a situation like those above.
I’m on hand to assist any businesses who needs to satisfy their creditors, as well clear bad debts.