Small Business, Enterprise and Employment Bill (HL Bill 91)

(b) in subsection (3)—

(i) in paragraph (b), for “one month” substitute “14 days”, and

(ii) for “three months” substitute “2 months”.

(3) In section 1001 (duty to act in case of company being wound up), in subsection
5(1), for “three months” substitute “2 months”.

(4) In section 1003 (striking off on application by company), in subsection (3), for
“three months” substitute “2 months”.

(5) The amendments made by subsection (2) do not apply in cases where the
communication mentioned in section 1000(1) of the Companies Act 2006 has
10already been sent before this section comes into force.

(6) The amendment made by subsection (3) does not apply in cases where the
notice mentioned in section 1001(1) of that Act has already been published in
the Gazette before this section comes into force.

(7) The amendment made by subsection (4) does not apply in cases where the
15application under section 1003(1) of that Act has already been made before this
section comes into force.

Part 9 Directors’ disqualification etc

New grounds for disqualification

104 20Convictions abroad

(1) After section 5 of the Company Directors Disqualification Act 1986 insert—

“5A Disqualification for certain convictions abroad

(1) If it appears to the Secretary of State that it is expedient in the public
interest that a disqualification order under this section should be made
25against a person, the Secretary of State may apply to the court for such
an order.

(2) The court may, on an application under subsection (1), make a
disqualification order against a person who has been convicted of a
relevant foreign offence.

(3) 30A “relevant foreign offence” is an offence committed outside Great
Britain—

(a) in connection with—

(i) the promotion, formation, management, liquidation or
striking off of a company (or any similar procedure),

(ii) 35the receivership of a company’s property (or any similar
procedure), or

(iii) a person being an administrative receiver of a company
(or holding a similar position), and

(b) which corresponds to an indictable offence under the law of
40England and Wales or (as the case may be) an indictable offence
under the law of Scotland.

(4) Where it appears to the Secretary of State that, in the case of a person
who has offered to give a disqualification undertaking—

(a) the person has been convicted of a relevant foreign offence, and

(b) it is expedient in the public interest that the Secretary of State
5should accept the undertaking (instead of applying, or
proceeding with an application, for a disqualification order),

the Secretary of State may accept the undertaking.

(5) In this section—

• “company” includes an overseas company;

• 10“the court” means the High Court or, in Scotland, the Court of
  Session.

(6) The maximum period of disqualification under an order under this
section is 15 years.”

(2) Section 5A(2) and (4) of the Company Directors Disqualification Act 1986, as
15inserted by this section, applies in relation to a conviction for a relevant foreign
offence which occurs on or after the day on which this section comes into force
regardless of whether the act or omission which constituted the offence
occurred before that day.

105 Persons instructing unfit director

20After section 8 of the Company Directors Disqualification Act 1986 insert—

“Persons instructing unfit directors

8ZA Order disqualifying person instructing unfit director of insolvent
company

(1) The court may make a disqualification order against a person (“P”) if,
on an application under section 8ZB, it is satisfied—

(a) 25either—

(i) that a disqualification order under section 6 has been
made against a person who is or has been a director (but
not a shadow director) of a company, or

(ii) that the Secretary of State has accepted a disqualification
30undertaking from such a person under section 7(2A),
and

(b) that P exercised the requisite amount of influence over the
person.

That person is referred to in this section as “the main transgressor”.

(2) 35For the purposes of this section, P exercised the requisite amount of
influence over the main transgressor if any of the conduct—

(a) for which the main transgressor is subject to the order made
under section 6, or

(b) in relation to which the undertaking was accepted from the
40main transgressor under section 7(2A),

was the result of the main transgressor acting in accordance with P’s
directions or instructions.

(3) But P does not exercise the requisite amount of influence over the main
transgressor by reason only that the main transgressor acts on advice
given by P in a professional capacity.

(4) Under this section the minimum period of disqualification is 2 years
5and the maximum period is 15 years.

(5) In this section and section 8ZB “the court” has the same meaning as in
section 6; and subsection (3B) of section 6 applies in relation to
proceedings mentioned in subsection (6) below as it applies in relation
to proceedings mentioned in section 6(3B)(a) and (b).

(6) 10The proceedings are proceedings—

(a) for or in connection with a disqualification order under this
section, or

(b) in connection with a disqualification undertaking accepted
under section 8ZC.

8ZB 15Application for order under section 8ZA

(1) If it appears to the Secretary of State that it is expedient in the public
interest that a disqualification order should be made against a person
under section 8ZA, the Secretary of State may—

(a) make an application to the court for such an order, or

(b) 20in a case where an application for an order under section 6
against the main transgressor has been made by the official
receiver, direct the official receiver to make such an application.

(2) Except with the leave of the court, an application for a disqualification
order under section 8ZA must not be made after the end of the period
25of 3 years beginning with the day on which the company in question
became insolvent (within the meaning given by section 6(2)).

(3) Subsection (4) of section 7 applies for the purposes of this section as it
applies for the purposes of that section.

8ZC Disqualification undertaking instead of an order under section 8ZA

(1) 30If it appears to the Secretary of State that it is expedient in the public
interest to do so, the Secretary of State may accept a disqualification
undertaking from a person (“P”) if—

(a) any of the following is the case—

(i) a disqualification order under section 6 has been made
35against a person who is or has been a director (but not a
shadow director) of a company,

(ii) the Secretary of State has accepted a disqualification
undertaking from such a person under section 7(2A), or

(iii) it appears to the Secretary of State that such an
40undertaking could be accepted from such a person (if
one were offered), and

(b) it appears to the Secretary of State that P exercised the requisite
amount of influence over the person.

That person is referred to in this section as “the main transgressor”.

(2) 45For the purposes of this section, P exercised the requisite amount of
influence over the main transgressor if any of the conduct—

(a) for which the main transgressor is subject to the disqualification
order made under section 6,

(b) in relation to which the disqualification undertaking was
accepted from the main transgressor under section 7(2A), or

(c) 5which led the Secretary of State to the conclusion set out in
subsection (1)(a)(iii),

was the result of the main transgressor acting in accordance with P’s
directions or instructions.

(3) But P does not exercise the requisite amount of influence over the main
10transgressor by reason only that the main transgressor acts on advice
given by P in a professional capacity.

(4) Subsection (4) of section 7 applies for the purposes of this section as it
applies for the purposes of that section.

8ZD Order disqualifying person instructing unfit director: other cases

(1) 15The court may make a disqualification order against a person (“P”) if,
on an application under this section, it is satisfied—

(a) either—

(i) that a disqualification order under section 8 has been
made against a person who is or has been a director (but
20not a shadow director) of a company, or

(ii) that the Secretary of State has accepted a disqualification
undertaking from such a person under section 8(2A),
and

(b) that P exercised the requisite amount of influence over the
25person.

That person is referred to in this section as “the main transgressor”.

(2) The Secretary of State may make an application to the court for a
disqualification order against P under this section if it appears to the
Secretary of State that it is expedient in the public interest for such an
30order to be made.

(3) For the purposes of this section, P exercised the requisite amount of
influence over the main transgressor if any of the conduct—

(a) for which the main transgressor is subject to the order made
under section 8, or

(b) 35in relation to which the undertaking was accepted from the
main transgressor under section 8(2A),

was the result of the main transgressor acting in accordance with P’s
directions or instructions.

(4) But P does not exercise the requisite amount of influence over the main
40transgressor by reason only that the main transgressor acts on advice
given by P in a professional capacity.

(5) Under this section the maximum period of disqualification is 15 years.

(6) In this section “the court” means the High Court or, in Scotland, the
Court of Session.

8ZE Disqualification undertaking instead of an order under section 8ZD

(1) If it appears to the Secretary of State that it is expedient in the public
interest to do so, the Secretary of State may accept a disqualification
undertaking from a person (“P”) if—

(a) 5any of the following is the case—

(i) a disqualification order under section 8 has been made
against a person who is or has been a director (but not a
shadow director) of a company,

(ii) the Secretary of State has accepted a disqualification
10undertaking from such a person under section 8(2A), or

(iii) it appears to the Secretary of State that such an
undertaking could be accepted from such a person (if
one were offered), and

(b) it appears to the Secretary of State that P exercised the requisite
15amount of influence over the person.

That person is referred to in this section as “the main transgressor”.

(2) For the purposes of this section, P exercised the requisite amount of
influence over the main transgressor if any of the conduct—

(a) for which the main transgressor is subject to the disqualification
20order made under section 8,

(b) in relation to which the disqualification undertaking was
accepted from the main transgressor under section 8(2A), or

(c) which led the Secretary of State to the conclusion set out in
subsection (1)(a)(iii),

25was the result of the main transgressor acting in accordance with P’s
directions or instructions.

(3) But P does not exercise the requisite amount of influence over the main
transgressor by reason only that the main transgressor acts on advice
given by P in a professional capacity.”

30Determining unfitness

106 Determining unfitness and disqualifications: matters to be taken into account

(1) The Company Directors Disqualification Act 1986 is amended as follows.

(2) In section 6 (duty of court to disqualify unfit directors of insolvent
companies)—

(a) 35in subsection (1)(b), for “any other company or companies” substitute
“one or more other companies or overseas companies”,

(b) after subsection (1) insert—

“(1A) In this section references to a person’s conduct as a director of
any company or overseas company include, where that
40company or overseas company has become insolvent,
references to that person’s conduct in relation to any matter
connected with or arising out of the insolvency.”,

(c) in subsection (2), omit the words from “and references” to the end, and

(d) after subsection (2) insert—

“(2A) For the purposes of this section, an overseas company becomes
insolvent if the company enters into insolvency proceedings of
any description (including interim proceedings) in any
5jurisdiction.”

(3) In section 8 (disqualification where expedient in public interest)—

(a) in subsection (2), after “the company” insert “(either taken alone or
taken together with his conduct as a director or shadow director of one
or more other companies or overseas companies)”,

(b) 10in subsection (2A)(a), after “shadow director” insert “(either taken
alone or taken together with his conduct as a director or shadow
director of one or more other companies or overseas companies)”, and

(c) after subsection (2A) insert—

“(2B) Subsection (1A) of section 6 applies for the purposes of this
15section as it applies for the purposes of that section.”

(4) Omit section 9 (matters for determining unfitness of directors).

(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) 20whether 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 it has to make a
disqualification order under any of sections 2 to 4, 5A, 8 or 10;

(c) 25where the court has decided to make a disqualification order
under 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) 30This section also applies where the Secretary of State must determine—

(a) whether 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
35accept a disqualification undertaking under section 5A, 7 or 8.

(4) In 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) 40in a case where the person concerned is or has been a director of
a 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
45applies for the purposes of that section.

(7) The 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
5statutory instrument subject to annulment in pursuance of a resolution
of 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 10The extent to which the person was responsible for the causes of any
material 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 15The frequency of conduct of the person which falls within paragraph
1 or 2.

4 The 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.

20Additional 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
relation 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
25overseas company.

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

Interpretation

8 Subsections (1A) to (2A) of section 6 apply for the purposes of this
30Schedule as they apply for the purposes of that section.

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

107 Reports 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) The office-holder in respect of a company which is insolvent must
prepare a report (a “conduct report”) about the conduct of each person
5who 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) For the purposes of this section a company is insolvent if—

(a) the company is in liquidation and at the time it went into
10liquidation 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) an administrative receiver of the company has been appointed;

and subsection (1A) of section 6 applies for the purposes of this section
15as 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
whether to exercise the power under section 7(1) or (2A) in relation to
the person.

(4) 20The 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
appropriate in the particular circumstances.

(5) 25If 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
should have been included in a conduct report prepared in relation to
30the 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
within more than one paragraph of subsection (2) at that time),
35subsection (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) the references in subsection (1) to the insolvency date are to be
40read 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
report has already been prepared and sent to the Secretary of
45State.

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

(c) 5in 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) The “insolvency date”—

(a) in the case of a company being wound up by the court, means
10the 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’
voluntary winding up, means the date on which the liquidator
forms the opinion that the company will be unable to pay its
15debts 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) in the case of a company being wound up by way of a creditors’
voluntary winding up where no such declaration under section
2089 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
25receiver has been appointed, means the date of that
appointment.

(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
30is to be ignored.

(12) In 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),
35omit subsection (3).

(4) For 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.

40Director disqualification: other amendments

108 Unfit 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
45director of insolvent company), for “2 years” substitute “3 years”.

(2) Subsection (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.

109 5Directors: removal of restriction on application for disqualification order

(1) In 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) 10in subsection (2A), omit “from such report, information or documents”.

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

Compensation awards

110 Compensation orders and undertakings

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

“Compensation orders and undertakings

15A Compensation 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
20mentioned in subsection (3) are met.

(2) If it appears to the Secretary of State that the conditions mentioned in
subsection (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
25application, for a compensation order.

(3) The conditions are that—

(a) the 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
30undertaking has caused loss to one or more creditors of an
insolvent company of which the person has at any time been a
director.

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

(a) 35the company goes into liquidation at a time when its assets are
insufficient for the payment of its debts and other liabilities and
the expenses of the winding up,

(b) the company enters administration, or

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

(5) 40The 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