Rogue Directors Beware | Mayo Wynne Baxter
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Rogue Directors Beware

In October 2016 the sentencing council launched a consultation entitled “Breach Offences Guideline Consultation”. The consultation was published on 25 October 2016 and will end 25 January 2017.

The Sentencing Council is an independent body responsible for developing sentencing guidelines for the Courts to use when passing a sentence. Currently there are no guidelines available for breaches of all types of court rrders, including breaches of Directors’ Disqualification Orders and Undertakings.

It is proposed that Magistrates will be given starting points to help them sentence disqualified company directors who breach their orders. The objective being to ensure a consistent approach in the court for sentencing.

Amongst the suggestions is a one year custodial sentence as a starting point for a disqualified company director who flagrantly breaches an Order which results in a significant risk or actual serious financial loss or harm to the company or others.

Whilst these are proposed guidelines the court’s discretion would remain as to whether to apply the starting point or to move above or below it in terms of sentencing. The Council has proposed a range of custodial sentences from twenty-six weeks to one year and six months.  Amongst the proposals is a twelve-week custodial starting point for flagrant breach of an Order which results in a very low risk or little or no financial loss to the company or others.

It is interesting to note that the consultation paper states “In all but one of the cases reviewed by the Council in developing the guidelines the breaches were flagrant, with the offenders deliberately setting up and/or managing companies or businesses knowing they were prohibited from doing so.” Furthermore “The other case related to a disqualified person failing to appreciate that the Disqualification Order was not restricted to commercial activities and extended to the management of a charity.”

At present, anyone found to breach a Disqualification Order under the Company Directors Disqualification Act 1986 is liable to be convicted for not more than two years or a fine, or both, and on summary conviction to six months in prison and/or a fine.

The introduction of starting point sentencing guidelines would show a determination to take a robust approach to sentencing for these offences. In a survey conducted of 216 Magistrates and District Judges in 2015 it showed that they wanted comprehensive sentencing guidelines for breach of rrders, presented in a consistent format and clearly identifiable.

A review of the Insolvency Service website shows cases where directors have been imprisoned for breaching disqualifications whether by an rrder of the court or by undertaking. In one example a sixty-seven-year-old Company Director from Hampshire was sentenced to six months in prison as a result of two insolvency offences.  The Director pleaded guilty to one count of being concerned in the management of a Company while disqualified from doing so and one count of using a prohibited name.

In that particular case the director’s wife was also sentenced to one hundred and fifty hours’ unpaid community service work as well as a Directors Disqualification Order for one year for aiding and abetting her husband.

The sentences handed out by the Court in these matters show the seriousness of the offenses and the approach taken by the Insolvency Service in securing prosecutions and convictions. The fact that the Sentencing Council are looking to further strengthen the Court’s position, which appears to be at the request of those involved in dispensing justice, it is important to take advice when faced with disqualification proceedings whether by way of a court application or a directors undertaking.

Mayo Wynne Baxter’s Insolvency Team have been successful in negotiating lower disqualification periods for directors as well as applying to court for disqualified directors to have leave to act as a director despite their disqualification. We can also advise and assist those who want to re-use a prohibited name under the Insolvency Rules which set out procedures that allow directors to use a prohibited name in the event the rules have been complied with.

By way of a reminder a prohibited name is a name by which a Company is known when it enters into liquidation and applies to a Director of that Company, or a person who has been a Director in the twelve months leading up to liquidation. They are prohibited for a period of five years from being a Director of another Company or carrying on a business which has the same name as the Liquidated Company or one so similar as to suggest an association.

For any advice on the above issues please contact Darren Stone of Mayo Wynne Baxter on 01273 775533. Please note that the above is only intended to be guidance and should not be taken as being legal advice.

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