Small Business, Enterprise and Employment Bill (HC Bill 117)

(5) After section 12B insert—

“12C Determining unfitness etc: matters to be taken into account

(1) This section applies where a court must determine—

(a) whether a person’s conduct as a director of one or more
5companies or overseas companies makes the person unfit to be
concerned in the management of a company;

(b) whether to exercise any discretion it has to make a
disqualification order under any of sections 2 to 4, 5A, 8 or 10;

(c) where the court has decided to make a disqualification order
10under any of those sections or is required to make an order
under section 6, what the period of disqualification should be.

(2) But this section does not apply where the court in question is one
mentioned in section 2(2)(b) or (c).

(3) This section also applies where the Secretary of State must determine—

(a) 15whether a person’s conduct as a director of one or more
companies or overseas companies makes the person unfit to be
concerned in the management of a company;

(b) whether to exercise any discretion the Secretary of State has to
accept a disqualification undertaking under section 5A, 7 or 8.

(4) 20In making any such determination in relation to a person, the court or
the Secretary of State must—

(a) in every case, have regard in particular to the matters set out in
paragraphs 1 to 4 of Schedule 1;

(b) in a case where the person concerned is or has been a director of
25a company or overseas company, also have regard in particular
to the matters set out in paragraphs 5 to 7 of that Schedule.

(5) In this section “director” includes a shadow director.

(6) Subsection (1A) of section 6 applies for the purposes of this section as it
applies for the purposes of that section.

(7) 30The Secretary of State may by order modify Schedule 1; and such an
order may contain such transitional provision as may appear to the
Secretary of State to be necessary or expedient.

(8) The power to make an order under this section is exercisable by
statutory instrument subject to annulment in pursuance of a resolution
35of either House of Parliament.”

(6) For Schedule 1 (matters determining unfitness of directors) substitute—

Section 12C

“Schedule 1 Determining unfitness etc: matters to be taken into account

Matters to be taken into account in all cases

1 The extent to which the person was responsible for the causes of any
40material contravention by a company or overseas company of any
applicable legislative or other requirement.

2 Where applicable, the extent to which the person was responsible for
the causes of a company or overseas company becoming insolvent.

3 The frequency of conduct of the person which falls within paragraph
1 or 2.

4 5The nature and extent of any loss or harm caused, or any potential
loss or harm which could have been caused, by the person’s conduct
in relation to a company or overseas company.

Additional matters to be taken into account where person is or has been a director

5 Any misfeasance or breach of any fiduciary duty by the director in
10relation to a company or overseas company.

6 Any material breach of any legislative or other obligation of the
director which applies as a result of being a director of a company or
overseas company.

7 The frequency of conduct of the director which falls within
15paragraph 5 or 6.

Interpretation

8 Subsections (1A) to (2A) of section 6 apply for the purposes of this
Schedule as they apply for the purposes of that section.

9 In this Schedule “director” includes a shadow director.”

101 20Reports of office-holders on conduct of directors of insolvent companies

(1) The Company Directors Disqualification Act 1986 is amended in accordance
with subsections (2) to (4).

(2) After section 7 insert—

“7A Office-holder’s report on conduct of directors

(1) 25The office-holder in respect of a company which is insolvent must
prepare a report (a “conduct report”) about the conduct of each person
who was a director of the company—

(a) on the insolvency date, or

(b) at any time during the period of 3 years ending with that date.

(2) 30For the purposes of this section a company is insolvent if—

(a) the company is in liquidation and at the time it went into
liquidation its assets were insufficient for the payment of its
debts and other liabilities and the expenses of the winding up,

(b) the company has entered administration, or

(c) 35an administrative receiver of the company has been appointed;

and subsection (1A) of section 6 applies for the purposes of this section
as it applies for the purpose of that section.

(3) A conduct report must, in relation to each person, describe any conduct
of the person which may assist the Secretary of State in deciding
40whether to exercise the power under section 7(1) or (2A) in relation to
the person.

(4) The office-holder must send the conduct report to the Secretary of State
before the end of—

(a) the period of 3 months beginning with the insolvency date, or

(b) such other longer period as the Secretary of State considers
5appropriate in the particular circumstances.

(5) If new information comes to the attention of an office-holder, the office-
holder must send that information to the Secretary of State as soon as
reasonably practicable.

(6) “New information” is information which an office-holder considers
10should have been included in a conduct report prepared in relation to
the company, or would have been so included had it been available
before the report was sent.

(7) If there is more than one office-holder in respect of a company at any
particular time (because the company is insolvent by virtue of falling
15within more than one paragraph of subsection (2) at that time),
subsection (1) applies only to the first of the office-holders to be
appointed.

(8) In the case of a company which is at different times insolvent by virtue
of falling within one or more different paragraphs of subsection (2)—

(a) 20the references in subsection (1) to the insolvency date are to be
read as references to the first such date during the period in
which the company is insolvent, and

(b) subsection (1) does not apply to an office-holder if at any time
during the period in which the company is insolvent a conduct
25report has already been prepared and sent to the Secretary of
State.

(9) The “office-holder” in respect of a company which is insolvent is—

(a) in the case of a company being wound up by the court in
England and Wales, the official receiver;

(b) 30in the case of a company being wound up otherwise, the
liquidator;

(c) in the case of a company in administration, the administrator;

(d) in the case of a company of which there is an administrative
receiver, the receiver.

(10) 35The “insolvency date”—

(a) in the case of a company being wound up by the court, means
the date on which the court makes the winding-up order (see
section 125 of the Insolvency Act 1986);

(b) in the case of a company being wound up by way of a members’
40voluntary winding up, means the date on which the liquidator
forms the opinion that the company will be unable to pay its
debts in full (together with interest at the official rate) within the
period stated in the directors’ declaration of solvency under
section 89 of the Insolvency Act 1986;

(c) 45in the case of a company being wound up by way of a creditors’
voluntary winding up where no such declaration under section
89 of that Act has been made, means the date of the passing of
the resolution for voluntary winding up;

(d) in the case of a company which has entered administration,
means the date the company did so;

(e) in the case of a company in respect of which an administrative
receiver has been appointed, means the date of that
5appointment.

(11) For the purposes of subsection (10)(e), any appointment of an
administrative receiver to replace an administrative receiver who has
died or vacated office pursuant to section 45 of the Insolvency Act 1986
is to be ignored.

(12) 10In this section—

• “court” has the same meaning as in section 6;

• “director” includes a shadow director.”

(3) In section 7 (disqualification order or undertaking and reporting provisions),
omit subsection (3).

(4) 15For the heading of section 7 substitute “Disqualification orders under section
6: applications and acceptance of undertakings”.

(5) In consequence of the repeal made by subsection (3), in Schedule 17 to the
Enterprise Act 2002, omit paragraph 42.

Director disqualification: other amendments

102 20Unfit directors of insolvent companies: extension of period for applying for
disqualification order

(1) In section 7(2) of the Company Directors Disqualification Act 1986 (period
within which application may be made for disqualification order against unfit
director of insolvent company), for “2 years” substitute “3 years”.

(2) 25Subsection (1) applies only to an application relating to a company which has
become insolvent after the commencement of that subsection.

(3) Section 6(2) of the 1986 Act (meaning of “becoming insolvent”) applies for the
purposes of subsection (2) as it applies for the purposes of section 6 of that Act.

103 Directors: removal of restriction on application for disqualification order

(1) 30In section 8 of the Company Directors Disqualification Act 1986
(disqualification of director after investigation of company)—

(a) in subsection (1), omit “from investigative material”,

(b) omit subsection (1A), and

(c) in subsection (2A), omit “from such report, information or documents”.

(2) 35For the heading of that section substitute “Disqualification of director on
finding of unfitness”.

Compensation awards

104 Compensation orders and undertakings

After section 15 of the Company Directors Disqualification Act 1986 insert—

“Compensation orders and undertakings

15A 5Compensation orders and undertakings

(1) The court may make a compensation order against a person on the
application of the Secretary of State if it is satisfied that the conditions
mentioned in subsection (3) are met.

(2) If it appears to the Secretary of State that the conditions mentioned in
10subsection (3) are met in respect of a person who has offered to give the
Secretary of State a compensation undertaking, the Secretary of State
may accept the undertaking instead of applying, or proceeding with an
application, for a compensation order.

(3) The conditions are that—

(a) 15the person is subject to a disqualification order or
disqualification undertaking under this Act, and

(b) conduct for which the person is subject to the order or
undertaking has caused loss to one or more creditors of an
insolvent company of which the person has at any time been a
20director.

(4) An “insolvent company” is a company that is or has been insolvent and
a company becomes insolvent if—

(a) the company goes into liquidation at a time when its assets are
insufficient for the payment of its debts and other liabilities and
25the expenses of the winding up,

(b) the company enters administration, or

(c) an administrative receiver of the company is appointed.

(5) The Secretary of State may apply for a compensation order at any time
before the end of the period of two years beginning with the date on
30which the disqualification order referred to in paragraph (a) of
subsection (3) was made, or the disqualification undertaking referred
to in that paragraph was accepted.

(6) In the case of a person subject to a disqualification order under section
8ZA or 8ZD, or a disqualification undertaking under section 8ZC or
358ZE, the reference in subsection (3)(b) to conduct is a reference to the
conduct of the main transgressor in relation to which the person has
exercised the requisite amount of influence.

(7) In this section and sections 15B and 15C “the court” means—

(a) in a case where a disqualification order has been made, the
40court that made the order,

(b) in any other case, the High Court or, in Scotland, the Court of
Session.

15B Amounts payable under compensation orders and undertakings

(1) A compensation order is an order requiring the person against whom
45it is made to pay an amount specified in the order—

(a) to the Secretary of State for the benefit of—

(i) a creditor or creditors specified in the order;

(ii) a class or classes of creditor so specified;

(b) as a contribution to the assets of a company so specified.

(2) 50A compensation undertaking is an undertaking to pay an amount
specified in the undertaking—

(a) to the Secretary of State for the benefit of—

(i) a creditor or creditors specified in the undertaking;

(ii) a class or classes of creditor so specified;

(b) 55as a contribution to the assets of a company so specified.

(3) When specifying an amount the court (in the case of an order) and the
Secretary of State (in the case of an undertaking) must in particular
have regard to—

(a) the amount of the loss caused;

(b) 60the nature of the conduct mentioned in section 15A(3)(b);

(c) whether the person has made any other financial contribution
in recompense for the conduct (whether under a statutory
provision or otherwise).

(4) An amount payable by virtue of subsection (2) under a compensation
65undertaking is recoverable as if payable under a court order.

(5) An amount payable under a compensation order or compensation
undertaking is provable as a bankruptcy debt.

15C Variation and revocation of compensation undertakings

(1) The court may, on the application of a person who is subject to a
70compensation undertaking—

(a) reduce the amount payable under the undertaking, or

(b) provide for the undertaking not to have effect.

(2) On the hearing of an application under subsection (1), the Secretary of
State must appear and call the attention of the court to any matters
75which the Secretary of State considers relevant, and may give evidence
or call witnesses.”

Consequential amendments and corresponding provision for Northern Ireland

105 Sections 98 to 104: consequential and related amendments

Schedule 7 makes amendments to the Company Directors Disqualification Act
1986, and other enactments, which are consequential on or related to the
5amendments made to that Act by the preceding provisions of this Part.

106 Provision for Northern Ireland corresponding to sections 98 to 105

Schedule 8 makes provision for Northern Ireland which corresponds to that
made by sections 98 to 105.

Bankruptcy: Scotland and Northern Ireland

107 Disqualification as director: bankruptcy, etc in Scotland and Northern
Ireland

For subsections (1) and (2) of section 11 of the Company Directors
5Disqualification Act 1986 (undischarged bankrupts) substitute—

“(1) It is an offence for a person to act as director of a company or directly
or indirectly to take part in or be concerned in the promotion, formation
or management of a company, without the leave of the court, at a time
when any of the circumstances mentioned in subsection (2) apply to the
10person.

(2) The circumstances are—

(a) the person is an undischarged bankrupt—

(i) in England and Wales or Scotland, or

(ii) in Northern Ireland,

(b) 15a bankruptcy restrictions order or undertaking is in force in
respect of the person under—

(i) the Bankruptcy (Scotland) Act 1985 or the Insolvency
Act 1986, or

(ii) the Insolvency (Northern Ireland) Order 1989,

(c) 20a debt relief restrictions order or undertaking is in force in
respect of the person under—

(i) the Insolvency Act 1986, or

(ii) the Insolvency (Northern Ireland) Order 1989,

(d) a moratorium period under a debt relief order applies in
25relation to the person under—

(i) the Insolvency Act 1986, or

(ii) the Insolvency (Northern Ireland) Order 1989.

(2A) In subsection (1) “the court” means—

(a) for the purposes of subsection (2)(a)(i)—

(i) 30the court by which the person was adjudged bankrupt,
or

(ii) in Scotland, the court by which sequestration of the
person’s estate was awarded or, if awarded other than
by the court, the court which would have jurisdiction in
35respect of sequestration of the person’s estate,

(b) for the purposes of subsection (2)(b)(i)—

(i) the court which made the order,

(ii) in Scotland, if the order has been made other than by the
court, the court to which the person may appeal against
40the order, or

(iii) the court to which the person may make an application
for annulment of the undertaking,

(c) for the purposes of subsection (2)(c)(i)—

(i) the court which made the order, or

(ii) 45the court to which the person may make an application
for annulment of the undertaking,

(d) for the purposes of subsection (2)(d)(i), the court to which the
person would make an application under section 251M(1) of the
Insolvency Act 1986 (if the person were dissatisfied as
mentioned there),

(e) 5for the purposes of paragraphs (a)(ii), (b)(ii), (c)(ii) and (d)(ii) of
subsection (2), the High Court of Northern Ireland.”

108 Company Directors Disqualification (Northern Ireland) Order 2002:
bankruptcy, etc in England and Wales or Scotland

For paragraph (1) of Article 15 of the Company Directors Disqualification
10(Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)S.I. 2002/3150 (N.I. 4)) (undischarged
bankrupts) substitute—

“(1) It is an offence for a person to act as director of a company or directly
or indirectly to take part in or be concerned in the promotion, formation
or management of a company, without the leave of the court, at a time
15when any of the circumstances mentioned in paragraph (1A) apply to
the person.

(1A) The circumstances are—

(a) the person is an undischarged bankrupt—

(i) in Northern Ireland, or

(ii) 20in England and Wales or Scotland,

(b) a bankruptcy restrictions order or undertaking is in force in
respect of the person under—

(i) the Insolvency (Northern Ireland) Order 1989, or

(ii) the Bankruptcy (Scotland) Act 1985 or the Insolvency
25Act 1986,

(c) a debt relief restrictions order or undertaking is in force in
respect of the person under—

(i) the Insolvency (Northern Ireland) Order 1989, or

(ii) the Insolvency Act 1986,

(d) 30a moratorium period under a debt relief order applies in
relation to the person under—

(i) the Insolvency (Northern Ireland) Order 1989, or

(ii) the Insolvency Act 1986.

(1B) In paragraph (1) “the court” means—

(a) 35for the purposes of sub-paragraphs (a)(i), (b)(i), (c)(i) and (d)(i)
of paragraph (1A), the High Court,

(b) for the purposes of paragraph (1A)(a)(ii)—

(i) the court by which the person was adjudged bankrupt,
or

(ii) 40in Scotland, the court by which sequestration of the
person’s estate was awarded or, if awarded other than
by the court, the court which would have jurisdiction in
respect of sequestration of the person’s estate,

(c) for the purposes of paragraph (1A)(b)(ii)—

(i) 45the court which made the order,

(ii) in Scotland, if the order has been made other than by the
court, the court to which the person may appeal against
the order, or

(iii) the court to which the person may make an application
for annulment of the undertaking,

(d) for the purposes of paragraph (1A)(c)(ii)—

(i) the court which made the order, or

(ii) 5the court to which the person may make an application
for annulment of the undertaking,

(e) for the purposes of paragraph (1A)(d)(ii), the court to which the
person would make an application under section 251M(1) of the
Insolvency Act 1986 (if the person were dissatisfied as
10mentioned there).”

109 Disqualification as insolvency practitioner: bankruptcy, etc in Scotland or
Northern Ireland

In section 390 of the Insolvency Act 1986 (persons not qualified to act as
insolvency practitioners)—

(a) 15in subsection (4)—

(i) in paragraph (a), after “bankrupt” insert “under this Act or the
Insolvency (Northern Ireland) Order 1989”;

(ii) in paragraph (aa), after “a debt relief order” insert “under this
Act or the Insolvency (Northern Ireland) Order 1989”;

(b) 20for subsection (5) substitute—

“(5) A person is not qualified to act as an insolvency practitioner
while there is in force in respect of that person—

(a) a bankruptcy restrictions order under this Act, the
Bankruptcy (Scotland) Act 1985 or the Insolvency
25(Northern Ireland) Order 1989, or

(b) a debt relief restrictions order under this Act or that
Order.”

110 Disqualification as insolvency practitioner in Northern Ireland: bankruptcy,
etc in England and Wales or Scotland

(1) 30Article 349 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405S.I. 1989/2405
(N.I. 19)) (persons not qualified to act as insolvency practitioners) is amended
as follows.

(2) In paragraph (4)—

(a) in sub-paragraph (a), after “bankrupt” insert “under this Order or the
351986 Act”;

(b)
in sub-paragraph (aa), after “a debt relief order” insert “under this
Order or the 1986 Act”.

(3) For paragraph (5) substitute—

“(5) A person is not qualified to act as an insolvency practitioner while there
40is in force in respect of that person—

(a) a bankruptcy restrictions order under this Order, the 1986 Act
or the Bankruptcy (Scotland) Act 1985, or

(b) a debt relief restrictions order under this Order or the 1986 Act.

(6) In this Article “the 1986 Act” means the Insolvency Act 1986.”

(4) In consequence of the amendment made by subsection (3), omit—

(a) paragraph 4 of Schedule 6 to the Insolvency (Northern Ireland) Order
2005 (S.I. 2005/1455 (N.I. 10)S.I. 2005/1455 (N.I. 10));

(b) paragraph 4(9)(b) of the Schedule to the Debt Relief Act (Northern
5Ireland) 2010 (c. 16 (N.I.)).

Part 10 Insolvency

Office-holder actions

111 Power for administrator to bring claim for fraudulent or wrongful trading

(1) 10The Insolvency Act 1986 is amended as follows.

(2) After section 246 insert—

“Administration: penalisation of directors etc

246ZA Fraudulent trading: administration

(1) If while a company is in administration it appears that any business of
15the company has been carried on with intent to defraud creditors of the
company or creditors of any other person, or for any fraudulent
purpose, the following has effect.

(2) The court, on the application of the administrator, may declare that any
persons who were knowingly parties to the carrying on of the business
20in the manner mentioned in subsection (1) are to be liable to make such
contributions (if any) to the company’s assets as the court thinks
proper.

246ZB Wrongful trading: administration

(1) Subject to subsection (3), if while a company is in administration it
25appears that subsection (2) applies in relation to a person who is or has
been a director of the company, the court, on the application of the
administrator, may declare that that person is to be liable to make such
contribution (if any) to the company’s assets as the court thinks proper.

(2) This subsection applies in relation to a person if—

(a) 30the company has entered insolvent administration,

(b) at some time before the company entered administration, that
person knew or ought to have concluded that there was no
reasonable prospect that the company would avoid entering
insolvent administration or going into insolvent liquidation,
35and

(c) the person was a director of the company at that time.

(3) The court must not make a declaration under this section with respect
to any person if it is satisfied that, after the condition specified in
subsection (2)(b) was first satisfied in relation to the person, the person
40took every step with a view to minimising the potential loss to the
company’s creditors as (on the assumption that the person had