Directors' disqualification and compensation orders

Archer, Ben (2015) Directors' disqualification and compensation orders. In: Society of Legal Scholars Conference 2015, 2015-09-03 - 2016-05-05, York University. (Unpublished)

Abstract

Under the proposed amendments to the Company Directors Disqualification Act 1986, as per s.15A–C, the Secretary of State may apply to the court to seek a compensation order, for the benefit of creditors of an insolvent company, against a director subject to a disqualification order or undertaking. Alternatively, a director may give a compensation undertaking to the Secretary of State in order to avoid court proceedings. This paper argues, contrary to the view that the reformed measures will significantly enhance the arsenal of the unsecured creditor in the war against unfit and delinquent directors, that the compensation order may ultimately prove to be, for the most part, a state-manufactured tool for the recovery of state- owed debts. The paper will evaluate various sources of empirical data, including the author’s own survey of disqualified directors based on Insolvency Service and Companies House data, to argue that the scope for the recovery of a significant proportion of unsecured debt owed to the ‘private’ creditor is limited. The paper will also demonstrate how this argument is compounded when considering the demographic of those who are actively being disqualified under the existing legislation. Further, the paper will identify the potential for the emergence of a system that may in practice elevate (and in the case of the Crown, re-elevate) a previously unsecured creditor to one that is preferred, under the guise of compensation and contrary to the pari passu doctrine. It will also be suggested, in any case, that the introduction of a scheme of compensation into the realm of disqualification stands at odds with the rationale behind it as being predominantly for the protection of the public. Instead, such a system only reaffirms the view that disqualification serves to punish the individual.