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COMPANY DIRECTORS DISQUALIFICATION BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION

  1. This Explanatory and Financial Memorandum relates to the Company Directors Disqualification Bill. It has been prepared by the Department of Enterprise, Trade and Investment ("the Department") in order to assist the reader in understanding the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.
  2. The Memorandum needs to be read in conjunction with the Bill. It does not give, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

    3. BACKGROUND AND POLICY OBJECTIVES

  3. The present system for disqualifying unfit directors was introduced by the Companies (NI) Order 1989. It replaced a previous system which required a minimum of three liquidations before a Court could make a disqualification order.
  4. Articles 1 to 25 of that Order allow a Court to make a disqualification order:
  1. The application for the disqualification order is made by the Department in cases where the conduct arose in a company which has become insolvent and in cases where the director has been convicted of an offence in connection with the promotion, formation or management of a limited company and the criminal Court has not made a disqualification order.
  2. From the making of the first disqualification order on 17 November 1994 the High Court has disqualified 167 directors on the application of the Department. A further 6 directors have been disqualified by the Crown Court following criminal proceedings.
  3. At present disqualification can only be achieved by means of court proceedings. Such proceedings can take a minimum of three months to hear in Court but in practice often take between six and nine months even in cases where the directors are accepting that they will be disqualified and are only introducing mitigating circumstances or making representations on the period of disqualification.
  4. This is an unduly long period and involves several court sittings which are expensive not only in Court time but in legal costs on both sides.
  5. The power to accept undertakings which the Bill will confer on the Department will mean that, where there is agreement between the Department and the director that there is evidence of unfitness, disqualification can be achieved administratively, without an application to the Court, by the director giving an undertaking to the Department. This should result in earlier disqualification for those who give an undertaking. It should also save Court time and the expense of a Court hearing.

    6. PURPOSE OF THE BILL AND SUMMARY OF ITS MAIN PROVISIONS

  6. The main purpose of the Bill is to introduce provision for disqualification of unfit directors by consent without the need for uncontested cases to be heard in Court. The Bill also consolidates the Companies (NI) Order 1989 and the various amendments which have been made to it since coming into effect in 1991. The Bill, which will include provisions for disqualification by administrative means, will bring Northern Ireland legislation into line with that introduced in GB by the Insolvency Act 2000 on 2 April 2001.
  7. Under the current law there is only one way in which someone can be disqualified from acting as a company director and that is by means of a Court order. Most applications are made by the Department to the High Court in cases where the company has become insolvent although a very small number of orders have been made by the Crown Court in cases where the director has been convicted of an offence in connection with the formation, management or liquidation etc of a limited liability company.
  8. In the case of an application by the Department to the High Court in a case where the company has become insolvent the High Court has no discretion and must make an order if it is satisfied that:
  1. In the case of an application following a criminal conviction the court has discretion about whether to make a disqualification order.
  2. Disqualification can, in the main, be for between two and fifteen years.
  3. Under the current law, a person subject to a disqualification order cannot be a director, liquidator or administrator of a company, be a receiver or manager of a company's property, or be concerned or take part either directly or indirectly in the promotion, formation or management of a company without the leave of the Court.
  4. The rights of the director will be fully safeguarded. The Department will only be able to accept an undertaking from a director if he/she consents to being disqualified for an agreed period.
  5. If the director does not accept that he should be disqualified or if he considers that the Department is asking for him to be disqualified for a longer period than he considers appropriate the case can still proceed for determination in a court hearing.
  6. There is also provision to allow a person who had given an undertaking to apply to the High Court for the undertaking to cease to be in force or for the period for which it was to be in force to be reduced. This is similar to the general legal concept in insolvency proceedings that the Court may review, rescind or vary any order.
  7. The giving of an undertaking will result in the director becoming subject, for a period of between 2 and 15 years, to the same restrictions as would have occurred had a disqualification order been made against him. He will have the same rights to apply to the High Court for leave to be a director of a company or to take part in the promotion, formation or management of one as if he had been subject to a disqualification order.
  8. The consequences for breach of an undertaking will be identical to those for breach of a disqualification order. Contravention would be a criminal offence attracting identical penalties and would give rise to identical civil liabilities. The new provisions are intended as an alternative to, not a replacement for the existing provisions which enable disqualification to take place on application to the High Court.
  9. Such application will still be necessary in cases where agreement cannot be reached on the period of disqualification and also in cases where no undertaking was offered or any form of contact made with the Department by the director. This will include cases where the director has not made any representations to the Department following receipt of the notification that the Department considered disqualification proceedings appropriate.
  10. The Bill will amend the law so that while it will remain possible for someone subject to a disqualification order (or who has given an undertaking) to apply to the High Court for leave to be a director of a company, to act as receiver of a company's property or to take part in the promotion, formation or management of a company, they will not, however, be able to apply for leave to act as an insolvency practitioner.
  11. The Bill will provide in the case of disqualification by court order for the period of disqualification to begin 21 days after the making of the order unless the High Court orders otherwise. This will give the director time to put in order the affairs of any company with which he is currently involved.
  12. The Bill will define the term "receiver" to exclude acting as administrative receiver who is an insolvency practitioner.
  13. The Bill will provide for inclusion of particulars of disqualification undertakings to be entered in the register of disqualification undertakings kept by the Department.
  14. The Bill will include provision placing court officials in Northern Ireland under a duty to send specified details of disqualification orders to the Secretary of State for Trade and Industry, for the purpose of maintaining a comprehensive UK-wide register of disqualification orders and undertakings.
  15. The Bill also provides for recognition of undertakings given to the Secretary of State for Trade and Industry in GB.
  16. The Bill will make it an offence to act in contravention of a disqualification undertaking, with identical penalties applying as would apply for contravention of a disqualification order made by the court, that is:

CONSULTATION
  1. A consultation document outlining in detail the proposal for a new Company Directors Disqualification Act was circulated to a wide spectrum of interests, including MPs, Assembly Members, representatives of interested professions and business associations and the various equality interest groups. None of the replies received were unfavourable.

    2. OPTIONS CONSIDERED

  2. Two options have been identified:

OVERVIEW

  1. The Bill contains 27 clauses and 4 Schedules.

COMMENTARY ON CLAUSES

Clause 1: Disqualification orders: general

This clause defines and sets out the circumstances in which a disqualification order may be made, provides that there is a maximum and minimum period of disqualification under such an order, establishes a time after the making of the order on which the period of disqualification begins and makes it clear that disqualification proceedings may go ahead independently of any separate criminal prosecution which might be brought.

Subsection (1) empowers the Court and in the case of Clause 7, requires it to make a disqualification order against a person disqualifying him from being a director or insolvency practitioner and from taking part in the promotion, formation or management of a company, without the leave of the Court, for the period specified in the order.

Subsection (2) provides for a maximum and (in clause 7) a minimum period of disqualification and specifies that a disqualification order shall begin 21 days after the making of the order.

Subsection (3) provides that where a disqualification order is made against a person who is already subject to such an order or a disqualification undertaking that the subsequent periods of disqualification shall run concurrently with the previous.

Subsection (4) provides that a Court may make a disqualification order on grounds, or having regard to matters, other than criminal convictions notwithstanding that the person against whom the order is made may also be criminally liable in respect of those matters or grounds.

Clause 2: Disqualification undertakings: general

This clause makes provision for directors whom the Department considers unfit to consent to a period of disqualification without the need for court involvement by giving a disqualification undertaking to the Department. The period of disqualification would be for a maximum of fifteen years in cases where the company has become insolvent or where an inspector has been appointed to investigate its affairs.

Subsection (1) allows the Department to accept an undertaking from a person not to act as a director or insolvency practitioner or take part in the promotion, formation or management of a company.

Subsection (2) provides for a maximum period of 15 years for the undertaking and, in cases brought under clause 8 (i.e. where the company has become insolvent), a minimum of 2 years.

Subsection (3) specifies that where a disqualification order is made against a person who is already subject to such an order or an undertaking that the subsequent periods of disqualification shall run concurrently with the previous.

Subsection (4) allows the Department in determining whether to accept a disqualification undertaking to take account of matters other than criminal convictions notwithstanding that the person may be criminally liable in respect of those matters.

Clause 3: Disqualification on Conviction of offence punishable only on indictment or either on conviction on indictment or on summary conviction

This clause provides that disqualification orders may be made against persons convicted on indictment or convicted summarily of an offence for which they could have been tried on indictment in relation to the promotion, formation, management, liquidation, striking off or the receivership of a company or its property.

Subsection (1) allows the Court to make disqualification orders against persons convicted on indictment or convicted summarily of an offence in connection with the promotion, formation, management, liquidation, striking off or the receivership of a company or its property or with being an administrative receiver of a company.

Subsections (2) and (3) define the courts which have jurisdiction in making disqualification orders and the maximum periods of disqualification which each may order.

Clause 4: Disqualification for persistent default under companies legislation

This clause provides for the making of a disqualification order against a person who has been persistently in default in relation to companies legislation requiring the delivery of documents to the Registrar of Companies.

Subsection (1) empowers the High Court to make a disqualification order against a person if it appears that he has persistently failed to comply with the provisions of the companies legislation requiring him to furnish the registrar with any return, etc.

Subsection (2) provides that where an application for a disqualification order to the High Court is made under this clause it shall be taken as conclusive proof that a person has been persistently in default if it is shown that he had 3 or more convictions for non-compliance in relation to the provisions specified in subsection (1) within the period of 5 years before the application is made. This subsection does not preclude proof of persistent default by other means.

Subsection (3) sets out the conditions precedent to being adjudged guilty of a default as provided for in subsection (2). One condition is a conviction (whether on indictment or summarily) for contravention of the provisions specified in subsection (1). The second, which is an alternative, is where the court has made a default order for contravention of the provisions of the Companies Order or the Insolvency Order relating to the making of returns and the delivery of accounts.

Subsection (4) provides that the maximum period of disqualification under this clause is 5 years.

NOTE

In company law the obligation to file documents with the Registrar of Companies or make certain returns is placed on the company itself although in some cases it is the duty of the directors, e.g. in the filing of annual accounts or liquidator's returns. Normally the company is prosecuted for a failure to make returns etc, although in most cases the legislation provides for it as a fault of the company or any of its officers (which includes a director). In subsection (1), it is the officer (ie the director) who must have been convicted of the offence (and not the company) if the provisions are to be used for the obtaining of a disqualification order.

Clause 5: Disqualification for fraud, etc., in winding up

This clause makes provision for the making of a disqualification order by the High Court during the winding up of a company where a person appears to be guilty of fraudulent trading under Article 451 of the Companies (NI) Order 1986 or fraud in relation to, or in breach of duty to, a company while an officer, liquidator, receiver or administrative receiver of the company's property.

Subsection (1) provides for the making of a disqualification order by the High Court during a winding up of a company where a person appears guilty of fraudulent trading (as defined in Article 451 of the Companies (NI) Order 1986) or fraud in relation to, or breach of duty to, a company while an officer, liquidator, receiver or administrative receiver of its property.

Subsection (2) provides that in this clause the term "officer" is to be construed as including "shadow director".

Subsection (3) provides that the maximum period of disqualification under this clause is 15 years.

NOTE

Subsection (1) refers to breach of duty by an officer, rather than breach of duty to the company, because such a breach is inappropriate for liquidators or receivers who may have duties to others outside the company such as creditors or debenture holders.

The clause also specifies that officer includes a shadow director (ie. a person in accordance with whose directions the directors of a company are accustomed to act).

Clause 6: Disqualification on summary conviction of offence

This clause empowers a court of summary jurisdiction to disqualify any person whom it convicts of a summary offence in relation to making returns to the registrar on the occasion of a person's conviction of a third offence within a period of 5 years.

Subsection (1) provides that for the purposes of this section an offence is one of which a person is convicted (either on indictment or summarily) as a result of contravening those provisions of the companies legislation requiring him to furnish returns, etc. to the registrar (whether the contravention is on his own part or on the part of any company).

Subsection (2) provides that where a person is convicted summarily of an offence as mentioned in subsection (1), the court by which he is convicted (or any other court of summary jurisdiction acting for the same petty sessions district) may make a disqualification order against him if the circumstances in subsection (3) are present.

Subsection (3) provides that the circumstances referred to in subsection (2) are that in the 5 years ending with the date of the conviction the person has been convicted of at least 3 default orders and offences counting for the purposes of this section and those offences may include that of which he is convicted under subsection (2) and any other offence of which he is convicted on the same occasion.

Subsection (4) defines "default order " as meaning the same as in clause 4(3)(b).

Subsection (5) specifies that the maximum period of disqualification under this section is 5 years.

NOTES

This clause confers on a court of summary jurisdiction the power to disqualify any person whom it convicts of a summary offence in relation to the making of returns to the registrar, if that person has had 2 other convictions for similar offences or has had 2 default orders made against him, or one of each, in the previous 5 years. It is similar to clause 7 (disqualification by the High Court) except that this clause deals only with action by a court of summary jurisdiction in relation to a history of default. As most company law defaults involving filing of documents are taken summarily this section enables the courts of summary jurisdiction themselves to make disqualification orders for persistent default in cases tried before them.

Default orders can only be made by the High Court but such orders count towards the total of offences for the purposes of this clause.

Clause 7: Duty of High Court to disqualify unfit directors of insolvent companies

This clause requires the High Court to make a disqualification order against a director for a minimum period of 2 years and up to a maximum of 15 years and gives the High Court guidance on the matters to be considered when an application for disqualification is made.

Subsection (1) requires the High Court to make a disqualification order against a person if it is satisfied that he is or has been a director of a company which has, at any time, become insolvent and that his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) renders him unfit to be concerned in the management of a company.

Subsection (2) provides that a company becomes insolvent for the purposes of this clause and also for the purpose of clause 8 when:

This subsection also provides that references to a person's conduct as a director include references to his conduct in relation to any other matter connected with or arising out of the insolvency of that company.

Subsection (3) specifies the minimum and maximum periods of disqualification under this clause as 2 years and 15 years respectively.

NOTES

This clause is aimed at persons who are or were directors of a company which has become insolvent.

It is closely linked with clause 8.

It requires the High Court to make a disqualification order against a person in any case where, in consequence of an application, it is satisfied that he is or was at any time a director of a company which has gone into insolvent liquidation and his conduct makes him unfit to be concerned in its management. Thus the Court is required to be satisfied that the director's conduct makes him unfit to be concerned with a company.

This is the only clause in the Bill which fixes the minimum period for a disqualification order. It is the clause under which most orders are made.

Clause 8: Disqualification order or undertaking; and reporting provisions

This clause makes provision for the Department to apply for a disqualification order in any case where the company has become insolvent and sets time limits for the application. It introduces a new provision allowing any person to give an undertaking in lieu of disqualification proceedings under clause 7 - any such undertaking will have the same effect and contravention of it will incur the same sanctions as if a disqualification order had been made by the High Court.

Subsection (1) allows the Department, where it considers it expedient in the public interest, to apply to the High Court for a disqualification order. In a compulsory liquidation the application may also be made by the Official Receiver - if the Department so directs.

Subsection (2) provides that, except with the leave of the High Court, an application for a disqualification order shall not be made after two years from the date on which the company became insolvent.

Subsection (3) allows the Department to accept an undertaking where it appears to the Department that it is expedient in the public interest to do so, in lieu of an application to the High Court for a disqualification order. The undertaking may also be accepted in a case where the application has already been filed in Court.

Subsection (4) provides for the liquidator in a voluntary liquidation, the Official Receiver in a compulsory liquidation and the administrator or administrative receiver to report unfit conduct (as referred to in clause 7(1)) to the Department.

Subsection (5) empowers the Department to require the officers listed in subsection (4) to provide such information as it may require in respect to any person's conduct as a director or to produce any books, papers or other records relevant to that person's conduct as a director as it may reasonably require for the purpose of deciding whether disqualification proceedings are appropriate against any person.

Clause 9: Disqualification after investigation of company

This clause enables the High Court, on the application of the Department, to make a disqualification order against a person whose conduct appears to be unsatisfactory in relation to him being concerned in the management of a company as a result of reports made by inspectors under provisions of the companies legislation or the Financial Services and Markets Act 2000. This also extends to open-ended investment companies.

Subsection (1) allows the Department to apply to the High Court for a disqualification order against a person who has been a director or shadow director of a company which was the subject of an investigation.

Subsection (2) defines the expression "investigative material" as including reports produced by inspectors appointed to investigate companies and other information or documents obtained under the companies legislation, the Financial Services and Markets Act 2000, the Criminal Justice Act 1987 and the Criminal Law (Consolidation) (Scotland) Act 1995.

Subsection (3) allows a person who is the subject of such reports to give the Department an undertaking not to act as a director and allows the Department to accept it.

Subsection (4) empowers the High Court to make a disqualification order against any person who is the subject of a disqualification application under this clause. The maximum period of disqualification in this case is 15 years.

Clause 10: Variation etc. of disqualification undertaking

This clause allows the High Court, on the application of a person who is the subject of a disqualification undertaking to reduce its period or provide that it ceases to be in force.

Subsection (1) provides for the High Court, on the application of a person who is the subject of a disqualification undertaking, to cancel an undertaking or reduce its period.

Subsection (2) allows the Department to appear before the Court where a disqualified person is making an application to vary an undertaking or provide for it to cease to have force and call the Court's attention to any matters which may be relevant and the Department may give evidence or call witnesses - see also clause 18(3).

Clause 11: Matters for determining unfitness of directors

This clause directs the High Court to consider the matters contained in Schedule 1 (Matters for Determining Unfitness of Directors) when contemplating the making of a disqualification order against a person.

Subsection (1) provides that where the High Court has to determine whether a person's conduct as a director or shadow director of a company or companies makes him unfit to be concerned in the management of a company, it shall have regard to Part I of Schedule 1 and where the company has become insolvent to Part II of that Schedule.

Subsection (2) provides that where the Department has to determine, in deciding whether to accept an undertaking from any person whether that person's conduct as a director or shadow director of a company or companies makes him unfit to be concerned in the management of a company, it shall have regard to Part I of Schedule 1 and where the company has become insolvent to Part II of that Schedule.

Subsection (3) refers to the definition of insolvency and to the matters determining unfitness set out in Schedule 1.

Subsection (4) provides that subject to subsection (5) references in Schedule 1 to either the Companies Order or the Insolvency Order shall be to the legislation in force at the time of the reference.

Subsection (5) provides that modifications may be made to the provisions of Schedule 1 by the Department and may include such transitional provisions as it considers necessary or expedient.

Clause 12: Participation in wrongful trading

This clause allows the High Court to make a disqualification order against a person involved in wrongful trading.

Subsection (1) provides that where the court makes a declaration under Article 177 (fraudulent trading) or 178 (wrongful trading) of the Insolvency Order that a person be liable to contribute to a company's assets, it may also make a disqualification order against him.

Subsection (2) provides that the maximum period of disqualification under this clause should be 15 years.

Clause 13: Undischarged bankrupts

This clause automatically prohibits an undischarged bankrupt from participation in the management of a company either directly or indirectly.

Subsection (1) provides that any person who is an undischarged bankrupt shall not act as a director or be concerned in the promotion, formation or management of a company without leave of the High Court.

Subsection (2) provides that leave of the Court shall only be given where a notice of intention to apply for it has been served on the Official Receiver and if he considers it to be contrary to the public interest he should attend the hearing and oppose it.

Clause 14: Failure to pay under administration order

This clause automatically prohibits anyone who is subject to an order from the Enforcement of Judgments Office for the administration of his estate for the benefit of all his creditors and who has defaulted on and had that order revoked from participation in the management of a company either directly or indirectly.

Subsection (1) provides that paragraph (2) has effect where an administration order under Part VI (ie for the administration of his estate for the benefit of all his creditors) of the Judgments Enforcement (N I) Order 1981 is revoked.

Subsection (2) provides that a person subject to an administration order under Article 86(1) of that Order and who has defaulted on it requires leave of the Court before he may act as a director or liquidator of, or directly or indirectly take part or be concerned in the promotion, formation or management of a company.

Clause 15: Persons disqualified in Great Britain

This clause provides that a person against whom a disqualification order is made or is subject to a disqualification undertaking under the Company Directors Disqualification Act 1986 in GB, is automatically banned from being a director of a company, acting as receiver of a company's property, acting as an insolvency practitioner or being in any way, directly or indirectly concerned or taking part in the promotion, formation or management of a company unless the Court provides otherwise.

There is corresponding provision in the GB legislation disqualifying a person who is the subject of a disqualification order made in NI.

Clause 16: Offences

This clause provides that contravention of a disqualification order or of clauses 13 (undischarged bankrupts), 14(2) (administration of a debtor's estate for the benefit of all his creditors) or 15 (disqualified in GB) is an offence punishable on summary conviction by a maximum of 6 months imprisonment or a fine or both or, on indictment, by a maximum of 2 years imprisonment or a fine or both.

Clause 17: Personal liability for company's debts where person acts while disqualified

This clause imposes personal liability without limit for the debts of a company on people or their nominees who act while disqualified or bankrupt.

Subsection (1) provides that a person shall be personally responsible for the relevant debts of a company as defined in subsection (3) if:

Subsection (2) provides that a person who is made responsible for the relevant debts of the company shall be jointly and severally liable with the company and with any other person liable for the same debts whether under this clause or otherwise.

Subsection (3), for the purposes of this clause, defines the relevant debts of a company. These are:-

Subsection (4) provides that a person is involved in the management of a company, for the purposes of this clause, if he is a director or is concerned, directly or indirectly, or takes part in its management.

Subsection (5) for the purposes of this clause, provides that a person who is involved in the management of a company and who at any time has acted on instructions given without the leave of the High Court by a person who he knew to be disqualified, subject to a disqualification undertaking, subject of a disqualification order or undertaking in GB or to be an undischarged bankrupt is to be presumed, unless the contrary is shown, to have been willing thereafter to so act on the instructions of such a person.

Clause 18: Application for disqualification order

This clause provides for the giving of 10 day's notice of intention to apply for a disqualification order, who may apply for the order and allows the applicant to appear and call the attention of the Court to any matters which seem to be relevant and may give evidence or call witnesses.

Subsection (1) provides that a person seeking to apply to the High Court for a disqualification order must give at least 10 days notice to the person against whom he seeks the order, and confers on that second person a right to give evidence or call witnesses.

Subsection (2) provides that the Department, the Official Receiver, the liquidator or a past or present member or creditor of any company in which that person has committed or is alleged to have committed an offence may make an application to the High Court for a disqualification order under any of clauses 3 to 5.

Subsection (3) provides that where the Department, the Official Receiver or liquidator apply for such an order the applicant shall appear at the hearing and call the Court's attention to any relevant matters and may give evidence or call witnesses.

Clause 19: Application for leave under an order or undertaking

This clause requires the Department to appear at an application for leave to act as a director, call the attention of the Court to any matters which seem relevant and may give evidence or call witnesses.

Clause 20: Register of disqualification orders and undertakings

This clause enables the public to identify persons who have disqualification orders made against them or who have given disqualification undertakings by continuing the register provided for in the Companies Order 1986 and bringing forward into the new legislation the rules for maintaining the register.

Subsection (1) provides that officers of courts shall supply the Department with prescribed particulars of cases where a disqualification order has been made, the Court has varied an order or the order has expired, the Court grants leave in relation to any prohibition contained in an order or the Court grants leave to any person subject to an undertaking.

Subsection (2) requires the Department to keep a register containing the particulars supplied to it under subsection (1), concerning disqualification orders made, varied, expired and cases where leave has been granted by the Court in respect of such orders.

Subsection (3) requires the Department to include in the register such particulars of disqualification undertakings accepted under clauses 8 or 9 and of cases in which leave to act has been granted.

Subsection (4) requires the Department to delete the particulars of a disqualification order or undertaking from the register when a disqualification order or undertaking expires.

Subsection (5) provides that the register shall be open to inspection on the payment of a prescribed fee.

Subsection (6) provides that the Department may furnish the Secretary of State for Trade and Industry with such particulars of disqualification undertakings as it considers appropriate.

Subsection (7) gives the Department power to make regulations to include in the register disqualification orders made in and undertakings accepted in GB under the Company Directors Disqualification Act 1986 as amended by the Insolvency Act 2000.

Clause 21: Admissibility in evidence of statements

This clause defines the basis on which statements may be used in evidence in proceedings under clauses 7 to 12 or 17 or Schedule 1 (i.e. civil proceedings) and prohibits their use in non-insolvency related criminal proceedings.

Subsection (1) provides that a statement made for the purposes of clauses 7 to 12 or 17 or Schedule 1 (ie. civil proceedings) or for the purpose of any other provision of this Act under the Insolvency Order may be used in evidence in any proceedings against any person who either made or concurred in making it. It is immaterial whether the proceedings are under this Act or some other statutory provisions.

Subsection (2) prohibits the use by the prosecution in criminal proceedings against a person of evidence obtained in statements under clauses 7 to 12 or 17 or Schedule 1. It also prohibits the asking of questions by the prosecution in relation to the statement unless first introduced by the person making the statement.

Subsection (3) lists the offences to which subsection (2) applies.

Subsection (4) allows the Department to make regulations under subsection (3) after being laid before the Assembly.

Clause 22: Interaction with the Insolvency Order

This clause provides that certain provisions of the Insolvency Order should be read as one with certain provisions of this Bill and specifies that certain provisions of that Order bind the Crown.

Subsection (1) provides that clauses 2, 7 to 12, 16, 17 and 21 and Schedule 1 are to be read as one with Parts II to VII of the Insolvency Order (and for practical purposes are construed as forming part of that Order) for the purposes of the following Articles of that Order:

Subsection (2) provides that Article 378 of the Insolvency Order which declares that certain provisions of that Order bind the Crown also applies to clauses 2, 7 to 12, 16, 17 and 21 and Schedule 1 and clauses 1 and 19 as they apply for the purposes of those clauses and that Schedule.

Clause 23: Application of Act to incorporated friendly societies

This clause provides that the provisions for disqualification of directors of companies also apply to directors of incorporated friendly societies.

Subsection (1) provides for the application of the Bill to incorporated friendly societies.

Subsection (2) provides that references to a company or to a director or to an officer of a company are also references to an incorporated friendly society or to a member of the committee of management or officer of an incorporated friendly society.

Subsection (3) provides for the omission of references to shadow directors in relation to friendly societies.

Subsection (4) provides that in the application of Schedule 1 to the members of the committee of management of an incorporated friendly society references to provisions of the Insolvency Order include references to the corresponding provisions of the Friendly Societies Act 1992.

Clause 24: Interpretation

This Clause provides for the definition of various terms used in the Bill.

Subsection (1) defines the terms used in the Bill.

Subsection (2) provides for references to the company's insolvency and its going into liquidation and to acting as an insolvency practitioner to be read in accordance with Article 3 of the Insolvency Order.

Subsection (3) provides for continuity between provisions of former companies legislation and current companies and insolvency legislation.

Subsection (4) provides for interpretation of expressions in Part I of the Companies Order to be in accordance with that Order and not in accordance with this Bill.

Subsection (5) defines references to "receiver" to include acting as both receiver and manager but not as an administrative receiver.

Clause 25: Transitional provisions, savings, amendments and repeals

This clause provides for transition from previous legislation to this Bill including provisions, savings, amendments and appeals.

Subsection (1) provides for the transitional provisions and savings in Schedule 2 to have effect for the purposes of this Bill.

Subsection (2) provides for the statutory provisions in Schedule 3 to have effect subject to the amendments specified there.

Subsection (3) enables the Department to make by order subject to negative resolution provision for any supplementary, incidental or consequential provision and for any transitory, transitional or saving provision.

Subsection (4) allows an order made under subsection (3) to modify, exclude or apply (with or without modification) any statutory provision and make consequential amendments, repeals and revocations of any such provision.

Subsection (5) provides for the repeal of the statutory provisions specified in the second column of Schedule 4.

Clause 26: Commencement

This clause provides for the Act to come into operation at such time as may be specified by order.

Clause 27: Short title

This clause cites the title of the Act as the Company Directors Disqualification Act (Northern Ireland) 2002.

Schedule 1: Matters for determining unfitness of directors

Schedule 1 sets out the matters which the Court should consider when deciding whether to make a disqualification order against any person.

Part I: Matters applicable in all cases

Part I of this Schedule provides that in all cases the following matters are deemed significant in determining the unfitness of directors:

Paragraph 1: any misfeasance or breach of any fiduciary or other duty in relation to the company;

Paragraph 2: any misapplication or retention of or any conduct by the director leading to an obligation to account for any money or other property of the company;

Paragraph 3: the extent of a director's responsibility for the company entering into a transaction liable to be set aside under Articles 367 to 369 of the Insolvency Order (provisions against debt avoidance);

Paragraph 4: the extent of a director's responsibility for the company failing to comply with the provisions of the Companies Order relating to the keeping of accounting records, the keeping of the register of directors, secretaries and members, the making of annual returns and the registration of charges;

Paragraph 5: the extent of the director's responsibility for failure to comply with Articles 234 or 235 (directors' duty to prepare annual accounts) and Article 241 (approval and signing of accounts) of the Companies Order;

Paragraph 6: this Schedule is applicable to the directors of open-ended investment companies;

Paragraph 7: this Schedule is applicable to the directors of building societies.

Part II: Matters applicable where the company has become insolvent

The purpose of this Part is to define the matters of unfitness which apply in a case where the company has become insolvent. Those matters are:

Schedule 2: Transitional provisions and savings

Schedule 2 makes provision for the transition from the previous legislation to this Bill.

Paragraph 1 provides for the commencement date to be appointed by means of an order under section 26 at an appropriate time.

Paragraph 2 ensures continuity of the law following repeal of Part II and Schedules 1 to 3 of the Companies Order (NI) 1989. It provides that where those provisions had specified a period of time which is running before the Act comes into operation that period of time continues to run as if the Act had not come into operation. It also provides that any rights, priorities, reliefs under the Companies Order (NI) 1989 Part II and Schedules 1 to 3, obligations, requirements, powers, duties or exemptions dependent in any way on that specified period of time shall not be affected by the Act coming into effect.

Paragraph 3 provides that this Schedule does not override the provisions of Sections 28 and 29 of the Interpretation Act (NI) 1954 which deals with the effect of substituting provisions.

Schedule 3: Consequential amendments

Schedule 3 makes provision to amend specified legislation so that should the Bill be enacted the Companies Order (NI) 1989 Part II and Schedules 1 to 3 will be removed and replaced by references to this Bill.

Schedule 4: Repeals

This Schedule lists the legislation repealed by this Bill when enacted.

FINANCIAL EFFECTS OF THE BILL
  1. The measures in the Bill are not expected to impose any material cost to business.

    2. There are no additional exchequer or staffing implications arising from these proposals.

    HUMAN RIGHTS ISSUES

  2. The provisions of the Bill are considered to be compatible with the terms of the Human Rights Act 1998. A copy of the consultative document was sent to the Human Rights Commission. The Commission did not raise any objections.

    3. EQUALITY IMPACT ASSESSMENT
  3. An equality screening of the provisions contained in the Bill has been carried out and no adverse impact in terms of equality of opportunity has been identified. A copy of the consultative document containing these proposals has been sent to the Equality Commission and widely circulated to the various equality interest groups (some 250 in number). Neither the Commission nor the interest groups have raised any concerns.
  4. The Department believes that to date the majority of those against whom disqualification orders have been made have been white and male. The legislation will, therefore, have a differential impact on a small number of men. This is to be expected and reflects the overall make up of company directors in Northern Ireland. The major impact of the legislation will be to offer a quicker and less costly, while still effective, way of handling disqualifications whilst continuing to protect the general public.

    5.

    SUMMARY OF THE REGULATORY APPRAISAL

  5. The Department has not carried out its own Regulatory Impact Assessment but has relied on that produced by the Insolvency Service in London in relation to similar legislation introduced last year which concluded that its Bill would not impose any significant costs on business save for the costs which some solicitors would incur in learning and gaining experience of the new system.
  6. The provisions currently contained in the Companies (Northern Ireland) Order 1989 which deal with disqualification of directors serve to protect the business community and the general public by providing for the disqualification of unfit persons from being directors or otherwise being involved in the management of limited companies. Two issues which have been identified through the operation of this legislation in practice are:
  1. This Bill will introduce a procedure whereby, without the necessity for a court hearing, an individual faced with disqualification proceedings may consent to becoming subject to the same restrictions as would apply in the event of a disqualification order being made ("the consent procedure").
  2. The absence of a statutory disqualification consent procedure leads to delays in securing the protection afforded by the disqualification regime, wastage of court time and increased costs for respondents and the Government. It is not possible to quantify the likely percentage of respondents to disqualification proceedings who would consent to disqualification. Over the past three years there has been an average of 21 disqualification orders made annually, 93.5% of which are not opposed at the final court hearing. The average costs awarded against a respondent involved in court proceedings in a disqualification application which is not opposed at the final hearing are estimated at £500. The Department has no knowledge, however, of the costs charged by the director's own solicitor.

    3.

    EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER

  3. It is not anticipated that the Bill will require any increase in the number of permanent staff in the public service.

    4. COMMENCEMENT
  4. A power is included in the Bill to bring its provisions into force by way of statutory instrument rather than bringing it into force on Royal Assent or on a date (or dates) specified in the Bill. Clause 26 which confers a power to make regulations comes into force when the Act is passed.

    5. IMPACT ON RELATIONS, CO-OPERATION OR COMMON ACTION ON A NORTH/SOUTH OR EAST/WEST BASIS
  5. The Bill will have no implications for North/South relations. The only implications for East/West relations is the placing of a duty on court officials in Northern Ireland to send specified details of disqualification orders and undertakings to the Secretary of State for Trade and Industry to enable a UK wide register of disqualification orders and undertakings to be maintained.

    6. SECRETARY OF STATE'S CONSENT
  6. The Bill creates a new offence, the creation of which is a reserved matter under paragraph 9(b) of Schedule 3 to the Northern Ireland Act 1998. It was therefore necessary to obtain the Secretary of State's consent under section 8 of the Northern Ireland Act 1998 to the consideration of the Bill by the Assembly.

    7. LEGISLATIVE COMPETENCE
  7. At Introduction the Minister of Enterprise, Trade and Investment had made the following statement under section 9 of the Northern Ireland Act 1998:

"In my view the Company Directors Disqualification Bill would be within the legislative competence of the Northern Ireland Assembly."