DISQUALIFICATION ORDERS

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Company Lawyer1988ArticleDISQUALIFICATION ORDERSJanet M. Dine.Copyright (c) 1988 Sweet & Maxwell Limited and ContributorsCases: Dawson Print Group Ltd, Re [1985] B.C.L.C. 601Stanford Services Ltd, Re [1987] B.C.L.C. 607Subject: COMPANY LAWKeywords: Directors; Disqualification ordersAbstract: Recent cases.*97 Two recently reported cases shed light on the operation of the company Directors Disqualification Act 1986. Re Dawson Print Group Ltd [1975] BCLC 601 and Re Stanford Services Ltd [1987] BCLC 607 were cases where opposite conclusions were reached by the court. They should, therefore, afford some insight into the matters which the court will consider important when considering disqualification. Both cases were in fact decided under s300 of the Companies Act 1985 (which was the predecessor to s6 of the Company Directors Disqualification Act) but there is no reason to believe that the principles applicble have been changed, although the new statute sets a lower threshold to its application.Thus under s300 of the Companies Act 1985 a director had to be associated with two successive insolvencies before being in peril of disqualification. By s6 of the 1986 statute the court is obliged to make a disqualification order where it is:'satisfied --(a) that [a person] is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently). and(b) that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) make him unfit to be concerned in the management of a company'.In determining this question the court is directed (by s9 and Sched 1) to have regard to a number of matters, including breach of duty owed by a director to the company, a director's part in the misapplication of assets, failure to keep proper records, file annual returns and prepare annual accounts and reports. So far as the insolvency of the company is concerned, the court is directed to have regard to a number of further matters including the extent of the director's responsibility for the insolvency and for the failure of the company to supply goods which have already been paid for, the director's involvement in any preference which may be set aside by the court, and failure to comply with duties imposed on a director by the Insolvency Act 1986 during the course of insolvency proceedings.In view of the judgments  in the cases it is interesting to note that the extent of debts  owed to the Crown is not specifically mentioned. The list, however, is not exhaustive. Section 9 directs the court to have regard to the matters mentioned 'in particular,' thus not excluding other matters from consideration. Further it is clear that the extent of indebtedness to the Crown would be relevant to determining the extent of the director's responsibility for the causes of the company becoming insolvent, as it may well involve a breach of duty to the company and breaches of the duty to keep accounts, all of which are matters to which the court's attention is particularly directed.Use of discretionUnder s6 of the 1986 Act the minimum period of disqualification is two years and the maximum period is 15 years. Under the Companies Act 1985 there was no minimum period of disqualification. Where the court is satisfied that the case has been made out under the 1986 legislation there is now no discretion as to disqualification. This change may be significant with regard to the value of Dawson as a precedent, so far as the outcome is concerned, since Hoffman J in that case spoke of using his discretion. However, he also
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found that the director was not unfit.The court no longer has a discretion whether to make an order if it is satisfied that the two criteria set out in s6(1) of the 1986 statute are satisfied, but it may be that the same factors could be taken into account to determine the 'unfitness' (the second criteria under s6) as were taken into account in order to determine whether a discretionary disqualification order ought to be made. Hoffman J in Dawson makes *98 no clear distinction between the exercise of his discretion and the finding that the director was not unfit. ...

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