...that is the question. But where do you choose to draw that line? As the office holder in a corporate insolvency you are already subject to a varied and complex set of duties and the requirement to submit a return on the conduct of the director(s) is just one more burden, and one for which you cannot charge for your time, initially at least. That said, having worked in this particular sector for the past five years, both managing a team selecting the 40% or so of D1 reports which merit further enquiry and also a team conducting the detailed investigation, I’ve come to believe that it is also one of the most important decisions you’ll make. You are, after all, the gatekeeper to this whole process. The arbiter between the management of a company being unquestioned and, potentially, legal proceedings which could cost millions of pounds and have a significant impact upon the life of an individual, not only through the restriction itself, but also the local publicity and influence on opinion that disqualification can bring; not to mention potential exposure to a claim against personal assets.
So how do you make that decision? How do you know just what the Secretary of State is looking for? Well, there are many considerations which gel together in determining whether a case is targeted or rejected and this article is aimed at providing an introduction to that process, to be supplemented over the coming weeks with further pieces, each exploring specific disqualification issues.
There is an obvious frustration in spending uncharged time putting together a detailed and comprehensive report only to have it rejected for a reason which you find hard to understand. SIP 4 provides some general guidance, but that document is about to celebrate its tenth anniversary and over that time disqualification law has developed enormously. Each time the Secretary of State loses a case the facts are picked over at a meeting of those involved to identify lessons to be learned which are then fed back into the case targeting policy – often leading to increased caution and, regrettably to my mind, an ever more risk-averse approach.
SIP 2 also offers some assistance, yet it correctly states that the purpose of your investigation work is to determine the company’s property and liabilities, with the aim of identifying actions which could lead to the recovery of funds. Keep that in mind, yours is not to investigate the conduct of the directors – that’s for the strange animal who blocks your boardroom for a day to scavenge through your files – yet your necessary investigation into the company’s affairs will impact upon the discharge of your duties under the Company Directors Disqualification Act 1986 (“CDDA”).
Unfortunately, there is no easy tick-list when it comes to “misconduct”; a decision of unfitness can be reached based upon any set of facts which demonstrate the premise, whilst the contents of the schedules to the CDDA itself are rarely invoked in actual proceedings. Yet there are a few well established allegations and the identification of one of these will often lead to an investigation which will yield more imaginative supplementary allegations. No matter what the individual facts of the case, however, try to keep in mind the four M’s – Misconduct, Motive, Materiality and Mitigation – as a guiding mantra for your thought process. The Secretary of State, when considering the misconduct alleged, will always be asking “so what?” and if the unfitness presented is immaterial, without conscious motive and/or subject to strong mitigating circumstances its unlikely the public interest criteria will be met.
In future articles I shall take a look at those areas with a high level of relevance to the most commonly presented allegations of unfitness, exploring areas such as the sanctity of accounting records, detriment arising through insolvent trading, Crown debt as an issue of unfitness in its own right and the involvement, in a company, of an individual subject to an existing restriction – either through being undischarged from bankruptcy or subject to an existing Disqualification or Bankruptcy Restriction Order.
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