This was a rise of 24% over the same period in 2000. Some were disqualified due to technical breaches of the law, while others were deemed unfit to be concerned with the management of a limited company. Whatever the ground, disqualification means that an individual is forbidden to be involved in the management of any limited company for the duration of the disqualification order, which may be anything up to 15 years.
The rise in disqualifications indicates that the authorities are taking a greater interest in monitoring directors' conduct. In the near future there is likely to be new legislation that will tighten and extend the rules on directors' duties and corresponding liabilities.
There are certain areas of company law where the unwary director can be found wanting, and which can lead to problems with the authorities.
Many companies fail to keep proper minutes of their board meetings. It is a legal requirement to do this, and is very much in directors' interests to ensure that the decisions they make and the matters they discuss are recorded clearly for future reference. If a company becomes insolvent, its liquidator will investigate the directors' conduct with a view to deciding whether they should be disqualified or made personally liable for the company's debts: the minutes will provide evidence of whether the directors took appropriate action in the period leading up to the insolvency.
Directors have a legal duty to prepare their company's annual accounts and, once approved and audited, to file them at Companies House within ten months of the year end. An automatic fine of £100 is levied on a company which files late. On top of this, individual directors that are late in filing their accounts may be prosecuted personally.
The current law does not expect all directors to be experts in any particular field; neither does it expect any uniform level of skill. However, the law does require directors to bring to their company whatever skill or expertise that they actually possess. For example, a director who is a qualified accountant will be expected to show a particular interest in – and will assume a higher degree of responsibility for – the company's financial and accounting affairs.
Where a company becomes insolvent, its directors owe their duties to its creditors. When a company goes into insolvent liquidation, the courts may make individual directors personally liable for debts run up after the point when they knew, or should have known, that the company was not likely to avoid this fate. The liquidator may also be able to claim back from directors any payments received by them from the company within the two year period leading up to the insolvency.
Details of all changes to a firm's directors, company secretary, and their personal details must be notified to Companies House within 14 days of the changes. The company's annual return should also be filed within 28 days of its chosen return date.
Every firm must appoint a company secretary. The same individual can act as director and secretary, but only where there are at least two directors. A sole director cannot simultaneously act as secretary – this rule ensures that a company will always have at least two officers.
Every limited company is a separate legal entity from its members and directors and from other limited companies. When a company goes into liquidation, it is perfectly legal for its members and directors to immediately start up a new company, even one pursuing the same line of business and from the same address as the insolvent company. There are rules, however, that seek to protect consumers and other businesses from being duped into thinking that the new company is the same entity.
A director of a company that has gone into insolvent liquidation may not, without special leave of the court, become a director of or be otherwise involved with a new company of the same or similar name as the insolvent company. Those who infringe this rule may be made personally liable for the new company's debts.
Under Companies Act rules, firms may not make any distribution of their capital funds, for example in the form of dividends, unless these are paid out of net realised profits. This is to ensure that the firm's capital is maintained. Even if a company is very small, owner-managed and unsophisticated in its purpose and operations, it is still subject to these legal restrictions.
Trouble at the top
Source
Electrical and Mechanical Contractor
Postscript
John Davies is head of business law at the ACCA.
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