Director Disqualification

What does it take for a director to be disqualified?

If you are a Director of a company, there is always the chance that if things go wrong, then you may end up being disqualified. But what happens if you were not directly responsible for any misdemeanour or for the company breaching any law?

The question was recently examined in the case of Re Asset Land Investment plc Secretary of State for Business, Energy and Industrial Strategy v Lord and others.

The first defendant (L) was a non-executive director of a company (the company) until he resigned. Almost five years after his resignation, a winding up order was made against the company on a petition presented by the Financial Conduct Authority (FCA) on the basis of an unpaid payment order made against the company in proceedings (the FCA proceedings) brought against the company, although not against L.

In the FCA proceedings, it was found that the company had breached s 19 of the Financial Services and Markets Act 2000 (FSMA 2000) by operating a land banking scheme, which comprised a collective investment scheme within the meaning of FSMA 2000 s 235.

As a result the Secretary of State issued proceedings against L under s 6 of the Company Directors Disqualification Act 1986 (CDDA) 1986 for a disqualification order against L and two other directors by reference to their conduct as directors of the company. The other directors agreed disqualification undertakings.

However, L contended that he was appointed as a non-executive director and that his role was limited to providing taxation and fiscal consultancy advice to the company with no management role within the business nor any involvement in acquiring, promoting or selling land. The Secretary of State claimed however that L had allowed the company to operate a collective investment scheme without being authorised in breach of the FMSA 2000 and allowed the company to make representations to the public in respect of the company's land banking scheme, and further, that he had failed properly to supervise the implementation of advice given to the company in regard to the events that gave rise to the investment scheme.

Ultimately the Chancery Division dismissed the application and disqualification did not occur. The Chancery Division said the following:

  • Before the FCA had become involved in the company's affairs, the company and/or its directors, on L's recommendations and his knowledge, sought and were given some advice in respect of FSMA 2000, but not advice to the effect that they were in breach of its provisions by virtue of the proposed business. Therefore a finding that the company and/or L disregarded or acted in breach of such advice could not be made.
  • Further, L's role was advisory and he was appointed as a result of his professional expertise and experience as a consultant in taxation and fiscal matters, not as a result of any knowledge of the particular business carried on. In certain aspects, L had participated in decision making or directly in management to a much greater degree.
  • On the evidence, L's involvement comprised a dual role. However, the issue was not whether L's conduct was impeccable or exemplary, but whether his conduct rendered him unfit to be concerned in the management of a company within the meaning of CDDA s 6.

In all the circumstances, on the evidence, even if some criticism of L's conduct could be made, it could not be found that L abrogated entirely his duties as a director in respect of the advice received in regard to compliance with FMSA.

If you are the subject of any proceedings or you are a director of a company and you want to have some legal help and advice, please do get in touch with Oliver Kew on 0118 957 5337.

Published on 31/01/2022

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