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'. After section 3 of the Company Directors Disqualification Act 1986 there is inserted the following new section--
"Disqualification orders: unfitness of director
.--(1) The court may make a disqualification order against a person where it appears to it--
(a) that he has been a director of a company which was struck off the register of companies by reason of its failure to deliver company accounts, and
(b) that his conduct as a director of that company makes him unfit to be concerned in the management of a company.
(2) The maximum period of disqualification under this section is five years.".'.
'(5) Before accepting a disqualification undertaking under this Act the Secretary of State shall prepare a summary statement of the outcome of the relevant investigation.
(6) The summary statement prepared under subsection (5) above shall be a matter of public record.'.
'(1A) The Court shall only grant an application under subsection (1) above if it is satisfied that there has been a material change of circumstances since the giving of the disqualification undertaking on the part of the person who is subject to the disqualification undertaking.'.
Mr. Chope: New clause 1 would prevent disqualified company directors from setting up and running unincorporated businesses during the period of their disqualification, unless they had obtained the authority of the Director General of Fair Trading.
Mr. Eric Forth (Bromley and Chislehurst): My hon. Friend must be aware that there may well be a general election in the first half of next year. Were that to be so, even if there were a Bill in the Queen's Speech, does my hon. Friend agree that it is most unlikely that it would reach the statute book? If something is not done now--today--we may face a period of two years before it is possible to deal with the matter.
Mr. Chope: My right hon. Friend is right. Throughout their term of office, the Government have said that they would legislate on rogue traders and introduce legislation to protect consumers. There is every prospect that this Parliament will be concluded before they have done anything effective on that front. The modest measure contained in new clause 1 would enable the Minister to go to the people at the next general election and say, "I delivered in part. I was not able to deliver the whole, but I delivered in part."
To develop the Minister's metaphor in Committee that my amendment was not the appropriate vehicle, if Parliament misses this bus, when will the next one come along? That is the point made by my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth).
In accordance with that undertaking, the Minister duly sent us such a note. As a result of reading it, I have modified the argument that I advanced in Committee. The new clause would make the Director General of Fair Trading the key person who could allow a disqualified rogue director to set up as the principal of an unincorporated business. It also makes the measure less absolute than that proposed in Committee and integrates it into the injunctions directive.
The injunctions directive is to be implemented in the United Kingdom by regulations. It is clear from the Minister's note that the European Union expects us to introduce that directive so that it has effect before 1 January 2001. That target will be missed by the Government, but in paragraph 6 of the note that the Minister kindly provided, he stated:
I do not know whether Mr. Turley was ever the director of a company, but if he behaved in such a way as a director of a company and he was disqualified as a director of that company, under my new clause he would automatically not be able to carry on business as an unincorporated trader. If the new clause were implemented, it would catch quite a large number, although not all, of rogue traders.
The last desperate argument that the Minister may deploy, as he did in Committee, is that new clause 1 would be piecemeal legislation. In that case, as I said in Committee, the new clause should fit in well with the Bill, which is made up of piecemeal legislation.
New clause 2 is even more important than new clause 1. It would fill a serious loophole in the current law as it affects the accountability of company directors. It builds on a full debate that we had in Committee. The best way of explaining the matter to the House is to give an example of how the gap in the law came to my notice, and the gravity of what was exposed by that experience.
A limited company can be established, it can trade and solicit subscriptions and donations, but after it has achieved its objectives, it can disappear without ever having to file accounts and without the public ever acquiring information about the remuneration of its directors or the value of their shareholdings.
Provided that no creditor is dissatisfied, the authorities in general and Companies House in particular have no penalty or sanction to use against the directors. Such sanctions as are available apply to persistent failure to file accounts. A company may be set up in the knowledge that it will trade and remunerate directors with large sums of money. If it dissolves as a result of a failure to produce accounts, the people who are eager to find out what those accounts might reveal--including the remuneration of directors--will be unable to gain access to that information.
That serious loophole in company law came to my attention two years ago when I inquired about a company called People's Trust Ltd. Some hon. Members may recall that that company was set up in January 1997 with the avowed aim of championing higher standards in public life. However, the records show that it failed to fulfil its obligations under the Companies Acts at the first hurdle: it failed to file its accounts. Two reminders were sent in 1998 and a notice was then placed in the London Gazette--all with no response. People's Trust Ltd. was then struck off the register for failing to file its accounts.
The founding chairman and main source of funds of that company--to the extent of at least £1 million--is well known to officials at the Department of Trade and Industry and to hon. Members: it is none other than Mr. Fayed. When challenged by The Independent about the failure to file accounts, a spokesman for Mr. Fayed said:
I complained to Companies House and suggested that some sanction should be introduced to gain access to the accounts. That was when I was told about the gap in the law, which means that the accounts, which must have existed, continue to remain hidden from the public gaze because when a company is dissolved it no longer has an obligation to provide information. I submit that the failure to file accounts, far being an administrative oversight, was a deliberate and calculated exploitation of the loophole in the Companies Acts, which the new clause would close.