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Explanatory Memorandum to Company Directors Disqualification (Northern Ireland) Order 2002

Purpose of the Order and Summary of Its Main Provisions

11.The main purposes of the Order are:

  • to consolidate the Companies (NI) Order 1989 and the various amendments

which have been made to it since coming into effect in 1991

  • to introduce provision for disqualification of unfit directors by consent without the need for uncontested cases to be heard in court. The Order will bring Northern Ireland legislation into line with that introduced in GB by the Insolvency Act 2000 on 2 April 2001.

12.Under the current law, as re-enacted in the Order, there is only one way in which someone can be disqualified from acting as a company director and that is by means of a Court order. Most applications are made by the Department to the High Court in cases where the company has become insolvent although a very small number of orders have been made by the Crown Court in cases where the director has been convicted of an offence in connection with the formation, management or liquidation etc of a limited liability company.

13.On an application by the Department to the High Court in a case where the company has become insolvent the High Court has no discretion and must make an order if it is satisfied that:

  • the person subject to the application is or has been a director of a company which has at any time been insolvent; and

  • that his conduct as a director of that company, or of that company plus any other company or companies, makes him unfit to be concerned in the management of a company.

14.In the case of an application following a criminal conviction the court has discretion about whether to make a disqualification order.

15.Disqualification can, in the main, be for between two and fifteen years.

16.Under the current law, a person subject to a disqualification order cannot be a director, liquidator or administrator of a company, be a receiver or manager of a company’s property, or be concerned or take part either directly or indirectly in the promotion, formation or management of a company without the leave of the High Court. The Order will amend the law so that while it will remain possible for someone subject to a disqualification order (or who has given an undertaking) to apply to the Court for leave to be a director of a company, to act as receiver of a company’s property or to take part in the promotion, formation or management of a company, they will not, however, be able to apply for leave to act as an insolvency practitioner.

17.The rights of the director will be fully safeguarded. The Department will only be able to accept an undertaking from a director if he/she consents to being disqualified for an agreed period.

18.If the director does not accept that he should be disqualified or if he considers that the Department is asking for him to be disqualified for a longer period than he considers appropriate the case can still proceed for determination in a court hearing.

19.There is also provision to allow a person who had given an undertaking to apply to the High Court for the undertaking to cease to be in force or for the period for which it was to be in force to be reduced. This is similar to the general legal concept in insolvency proceedings that the Court may review, rescind or vary any order.

20.The giving of an undertaking will result in the director becoming subject, for a period of between 2 and 15 years, to the same restrictions as would have occurred had a disqualification order been made against him. He will have the same rights to apply to the High Court for leave to be a director of a company or to take part in the promotion, formation or management of one as if he had been subject to a disqualification order.

21.The consequences for breach of an undertaking will be identical to those for breach of a disqualification order. Contravention would be a criminal offence attracting identical penalties and would give rise to identical civil liabilities. The new provisions are intended as an alternative to, not a replacement for the existing provisions which enable disqualification to take place on application to the High Court.

22.Such application will still be necessary in cases where agreement cannot be reached on the period of disqualification and also in cases where no undertaking was offered or any form of contact made with the Department by the director. This will include cases where the director has not made any representations to the Department following receipt of the notification that the Department considered disqualification proceedings appropriate.

23.The Order will provide in the case of disqualification by court order for the period of disqualification to begin 21 days after the making of the order unless the High Court orders otherwise. This will give the director time to put in order the affairs of any company with which he is currently involved.

24.The Order will define the term “receiver” to exclude acting as administrative receiver who is an insolvency practitioner.

25.The Order will provide for inclusion of particulars of disqualification undertakings to be entered in the register of disqualification undertakings kept by the Department.

26.The Order will include provision placing court officials in Northern Ireland under a duty to send specified details of disqualification orders to the Secretary of State (Trade and Industry) for the purpose of maintaining a comprehensive UK-wide register of disqualification orders and undertakings.

27.The Order will also provide for recognition of undertakings given to the Secretary of State for Trade and Industry in GB.

28.The Order will make it an offence to act in contravention of a disqualification undertaking, with identical penalties applying as would apply for contravention of a disqualification order made by the court, that is:

  • a term of imprisonment of not more than two years or a fine, or both, on conviction on indictment; or

  • a term of imprisonment of not more than six months or a fine not exceeding the statutory maximum, or both, on summary conviction.

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