Unfit directors the amended position

District Judge Ivor Weintroub rounds up the new laws of special interest to directorsWith the fall in the stock market and depression in farming and tourism, the coming into force of certain provisions of the Insolvency Act 2000 (the Act) on April 2 2001(SI 2001/766) may be seen as an example of immaculate timing.The main provisions of the Act now in force amend the Company Directors Disqualification Act 1986 (the 1986 Act) which unsurprisingly relate to the disqualification of unfit directors.

Section 5(1) and (2) of the Act amends section 1 of the 1986 Act providing for a new form of order whereby, for a period specified in the order:(a) he shall not be director of a company, act as a receiver of a companys property or in any way, whether directly or indirectly, be concerned or take part in the promotion formation or management of a company unless (in each case) he has the leave of the court, and(b) he shall not act as an insolvency practitionerPeriods of disqualification will now begin 21 days after the making of an order.An undertaking: the new alternativeSection 6 of the Act inserts section 1A into the 1986 Act providing for the giving of an undertaking (disqualification undertaking) in the same terms as a section 1 order for a maximum period of 15 years.

Where disqualification is contemplated on the grounds of section 7 of the 1986 Act, then the undertaking is to be for a minimum period of two years.

The secretary of state may accept an undertaking rather than making an application for an order where in his view it is expedient in the public interest to do so.

When determining whether to accept a disqualification undertaking, the secretary of state is to consider whether a persons conduct makes him unfit to be a director, and where the company has become insolvent, have regard to the matters that the court would otherwise need to consider under section 9(1) of the 1986 Act.

Thus the secretary of state will, in determining what is expedient, consider matters that were otherwise in the judicial domain in deciding the seriousness, or otherwise, of the directors conduct.

It is also interesting when considering the criteria that the secretary of state may by order alter those criteria, although this must be by statutory instrument, and therefore be subject to the will of Parliament (section 9(4) of the 1986 Act).

There may be human rights implications (see below).

It is also possible that periods of undertaking proffered, or indicated to be acceptable to avoid proceedings, might be longer than those which would be imposed by the court following the hearing of evidence.Over to the courtSubject to any matters the secretary of state may bring to the attention of the court for which purpose he shall appear and, if necessary, call evidence, the court by section 8A of the 1986 Act may on the application of the person subject to the disqualification undertaking reduce the period of the undertaking or agree to its termination.

The court is that which would have jurisdiction under sections 6 and 7 (generally that which wound up the company) or section 8 (the High Court) of the 1986 Act.

Such an application is to be made by way of a claim form under the Civil Procedure Rules 1998, part 8.

This provision will allow the court to review the fairness of the period of the disqualification undertaking.

The criteria for such a review are not set out, but the opportunity of review may be to show that the provisions are compliant with the Human Rights Act 1998.

The undertaking could have been given under threat of proceedings, the consequences of which are draconian, and there would not have been a judicial review of the evidence.

Note that there is no provision that the undertaking must be given within two years of the insolvency of the company which is the time limit within which proceedings must be taken for disqualification under section 6 of the 1986 Act without leave of the court.

Will it be prudent to proffer an undertaking after two years before knowing whether leave will be given by the court in the absence of an undertaking?Disqualified but not downcastWhere a person subject to a disqualification undertaking desires the courts leave to act as a director then he may apply for it to the court which would have had jurisdiction to hear disqualification proceedings.

On such applications the secretary of state shall appear and call evidence he considers relevant (paragraph 12(3)-(5) of schedule 4 to the Act).Administration order: headache for the landlordUnder section 9 of the Act, part II of the Insolvency Act 1986 concerning company administration orders is amended to provide at section 10(1)(aa) that following an application for such an order, a landlord may not exercise any right of forfeiture by peaceable re-entry in respect of premises let to the company for breach of any term without leave of and upon such terms as imposed by the court.New prosecutorSection10 of the Act amends section 218 of the Insolvency Act 1986 by altering the prosecuting authority in England and Wales to the secretary of state in the event of the prosecution of a director following a winding up.

He is also given certain other responsibilities in respect of the receipt of reports and investigations.Free to speakFollowing the decision in Saunders v UK (1996) 23 EHRR 313 there are important amendments made to section 219 of the Insolvency Act 1986 by section 11 of the Act.

No longer will answers given by persons being investigated under section 11 of the Act be admissible in criminal proceedings or questions relating to those answers be allowed by the prosecutor unless the persons have themselves first adduced evidence or put questions relating to those answers (except as to a charge of making a false statement under oath otherwise than in judicial proceedings).Insolvent estatesBy section 12 of the Act section 412A of the Insolvency Act 1986 is introduced.

This provides that in the event of an insolvency administration order in respect of the insolvent estate of a deceased person being entitled to property as a joint tenant immediately before death, then the surviving joint tenant may be ordered to pay to the deceaseds estate the value lost.

Furthermore, unless there are exceptional circumstances the interests of creditors will outweigh all other considerations section 421A(3).

What are exceptional circumstances may require consideration of Re Bremner [1999] 1 FLR 912 and Claughton v Charalambous [1999] 1 FLR 740 to seek postponement of sale perhaps during lifetime or occupancy of surviving partner and carer on terms.

InterestingMonies held in the Insolvency Services account are now to bear interest (section 13 of the Act amending schedule 9 to the 1986 Act).Bear in mind that the amendments also affect partners where the partnership is being wound up as an unregistered company by the court.

Consequential amendments have been made to article 16 and schedule 8 of the Insolvent Partnerships Order 1994 by the The Insolvent Partnerships Order (Amendment) Order 2001 SI 2001 No.

767.

The article applies the 1986 Act to such partnerships, and gives effect to the above provisions.Before the provisions of sections 1-4 of the Act providing for a moratorium in company voluntary arrangements, and alterations to individual voluntary arrangements can be brought into force there will have to be consequential amendments made to the insolvency rules.These amendments are anticipated for the heady days of midsummer, when regrettably many occupants of the countryside may be giving them serious consideration, but that will have to wait.District Judge Ivor Weintroub sits at Bournemouth Combined Court