Tuesday, 6 April 2010

Back to the Future with Directors’ Disqualification Undertakings?

In the mediaeval times, the creditor could choose to seize either the body or the effects of his debtor. The latter was often summarily arrested and imprisoned at the former’s command because insolvency was a criminal offence perpetrated by persons unfit to be concerned in the buying and selling of goods or the management of farmland; and bankruptcy laws constituted the appropriate medium for chastising reckless entrepreneurs and deterring brazen ventures. However, as the decades rolled on trading communities demanded more reforms. The Court for the Relief of Insolvent Debtors was established in 1813 and allowed debtors to ‘petition for protection from process.’ The Court could make an order vesting the honest debtor’s property in a trustee, along with provisions for his discharge. This Court is the ancestor of the Administration Order procedure in the County Court.

Nonetheless, although this reform followed the recognition of the importance of debt, risk and limited liability to economic development, a general feeling of resentment accompanied the spectacular rise and fall of several limited liability companies. This is because more often than not a dishonest entrepreneur had found a niche behind the corporate veil. The Greene Committee on Company Law and the Companies Act 1929 provided for the disqualification of fraudulent and dishonest directors; the Insolvency Act 1976 introduced the disqualification of unfit directors; and director disqualification is now governed by the Company Director Disqualification Act 1986 and the Insolvency Act 2000.

The humane treatment accorded to debtors following the reforms of 1813 is now almost a jaded tradition. The general feeling of resentment has only increased since then given the persistent belief (although without conclusive empirical evidence) in the correlation of company failures, directors’ ineptitude or slyness and disqualification orders. Since Re Carecraft Construction and Co Ltd [1994] 1 WLR 172, there is more emphasis on expeditious administrative procedures and less on the judicial procedure and the director’s right to a fair trial. Thus, one cannot help wondering whether, like in the mediaeval times, the end now seems to justify the presumed result; and creditors and administrators are once again becoming habituated to the idea of furthering public interests, deterring reckless stewardship and compensating victims by chastising debtors and those in their employment, whether honest or fraudulent
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