Bankruptcy and company director

[andymac]

I would be interested to know if any people ever actually get permission from the court to continue to manage a business or be a director, and if so, under what circumstances?

[ray_a]

Hi Andy

The law states that a person who is bankrupt can not be a company director.

Once he is discharged then the person can become a director.

[mikebdomain]

ray_a a bankrupt can continue to be a company director with permission from the court. I do not anybody who has actually done it, but I do know of two people who have been refused when they applied to stay as company directors.

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[ray_a]

Hi Mike

I was referring to the Companies Act all be it the 1985 version. Trying to find a course for the latest!

I must admit I haven't heard or seen anyone who has managed it either!

One of those situations where other people usually family have to take over!

I know that causes problems as well as there is a danger of falling into "shadow directorships" which of course could be an offence!

This will no doubt start a debate!

[mikebdomain]

Hi ray_a I believe the latest companies Act to that applies to this question is the 1986 version

Disqualified directors

Under the Company Directors Disqualification Act 1986 the court may make a disqualification order for a specified period against an individual. As a result that person:

(a) must not be a director of a company, be a member of a limited liability partnership, act as receiver of a company’s property, or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless he/she has permission of the court

(b) must not act as an insolvency practitioner.

Also, under the Insolvency Act 2000, an individual may give an undertaking to the Secretary of State for Trade and Industry not to do anything mentioned in (a) and (b) above; and, once accepted, that undertaking has the same effect as a disqualification order.

Undischarged bankrupts

Similarly, when a bankruptcy order has been made against an individual, he or she must get the court’s permission before becoming a member of a limited liability partnership or acting as a director of, or directly or indirectly taking part in or being concerned in the promotion, formation or management of a company. While the bankruptcy order remains in force, the individual is undischarged from the bankruptcy.


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[ray_a]

Hi Mike

Thanks for that I have to admit it has been a while since I looked at that section!

Do you know when the latest Companies Act changes will come into place with regard to corporate insolvency please?

[mikebdomain]

I have found is the following information which maybe helpful;

1) There is something called a Carecraft procedure I (Re Carecraft Construction Co). This enables the director’s lawyers to approach the DTI to negotiate and agree a written statement of facts and the appropriate penalty.

Another alternative is for the director to give a disqualification undertaking instead of submitting to an order. It has been a popular solution for directors. Since its introduction under the Insolvency Act 2000 on 2 April 2001, there has been a 24% increase in director disqualifications with 57% by way of undertakings given.

2) If asked, the court can give permission to a defendant to remain as a director of a company provided he can assure the court that there are adequate safeguards in place.

: Given the uncertainty over what is and what is not being “involved in the management of a company”, an application for permission is a prudent precaution for any defendant who is likely to hold a senior or decision making role in a company.

Ray_a changes will come into force on 1 October 2007

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[ray_a]

Thanks Mike and this is very useful!

Andy or the site manager could we move this thread over to the section dealing with Directors please!

I better go onto the Companies house website and check which provisions are coming in at the relevant dates as certain sections are being introduced on differing dates I believe!

[MelanieGiles]

I have to say chaps that I am very confused by these posts.

The original query was could someone continue to be a director under special circumstances, and yes the Court can give permission but only in an emergency. The reality is that it is very easy for a bankrupt to continue to direct a business or company from the wings, and until our Companies legislation gets more teeth they will continue to do so in practice.

The Carecraft provisions Mike is referring to, do not relate to this issue but is a procedure used to negotiate settlements from directors found guilty of misfeasance under Liquidation proceedings.

Think we are comparing apples and pears!

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

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