Thursday, 01 May 2014 16:30

BIS plan public database of company directorships

A publicly accessible database of company directorships could soon become a reality, following the conclusion of a consultation by the Department for Business, Innovation and Skills.

The proposals outline plans for a central registry of company beneficial ownership information - including details of trustees, where relevant, and of individuals with ownership of more than 25% of the shares in a company, or the equivalent proportion of its voting rights.

 Details on record could include all of the following for each relevant individual in a company:

  • Full name
  • Date of birth
  • Nationality
  • Country of residence
  • Home address
  • Contact address
  • Date on which they acquired beneficial interest
  • Details of that interest

All information should be made publicly available, both at the company's registered office (unless it is a residential address) and in slightly abridged form via Companies House, and new registrations will be rejected if any of the information is not provided.

Transparency of Directorship

The move is all part of a long-term aim to improve the transparency of company directorships - and that includes several other measures outlined in the consultation document.

For instance, 'corporate directorships', in which one company is named as 'director' of another, will no longer be permitted except in very specific circumstances to reduce risk.

'Front directors', where an individual is named as company director but does not fulfil their duties, will also be banned, and new legislation is planned to ensure directors can be contacted as necessary.

And an updated CDDA (Company Directors' Disqualification Act) will be introduced "when Parliamentary time allows" to create broader rules on assessing the conduct, track record and culpability of a company director.

Once introduced, this new legislation will be used by the Insolvency Service and the courts when deciding how long, if at all, a company director should be disqualified for.

Compensation for Creditors

The consultation document contains a four-page section outlining measures for 'better' compensation of creditors following director misconduct.

It opens by conceding that "currently, those who have suffered loss as a result of misconduct do not generally benefit, and might feel disqualification is not a sufficient deterrent or form of redress".

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Under the Insolvency Act 1986, action can already be taken against what BIS calls 'miscreant directors' by creditors, but this has very rarely happened in the past 30 years or so.

There have only been 30 wrongful trading cases - an average of just one per year - along with 50 preference claims and only about 80 cases pertaining to undervalue transactions.

One possible reason why so few cases have been brought is that only the company liquidator can currently bring an action for fraudulent trading or wrongful trading.

The proposals plan to change this, by allowing the right to pursue action to be assigned to another party.

Respondents to the consultation were mixed in their views on this - some were for it, others were against it, and in some cases they felt that it would provide a greater deterrent to miscreant directors regardless of whether or not it leads to more action being taken against them.

A further proposal - to allow courts to make compensation awards against disqualified directors - met with more widespread support, with positive responses from about two thirds of the consultation's submissions.

The Root of the Issue

On paper the proposals seem to make sense - total transparency in directorships, and harsher sanctions for miscreant directors.

But we are concerned that the plans are not really getting to the root of the issue, and with a mixed response to the consultation, it seems we are not the only ones.

Even the government's own response to the consultation admits that the ability to assign rights to third parties could lead to unwarranted claims, but simply calls on insolvency professionals to use their own judgment when deciding whether to assign the right - which in itself could simply restore the existing barrier to claims being made.

As for the possibility of compensation being paid by miscreant directors, the government has proposed that only the Secretary of State will be able to apply for a compensatory order to be made by the court.

The flipside is that directors will be able to offer a compensation undertaking to the Secretary of State, as an alternative to going through court - which could mean some are able to 'buy out' of facing legal action for their misconduct.

We hardly think that this constitutes a Robin Hood way of thinking, and if anything it may reduce the jeopardy for misconduct among company directors.

But with the government seemingly set on pushing through the changes in legislation "when Parliamentary time allows", only time will tell whether they are good or bad news for creditors, or simply yet another toothless policy that's all talk and no trousers.

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For more about this issue, watch the BIS consultation page on GOV.UK.

Image "Hide-and-Seek" by flickr user Stéfan is licensed under CC BY 2.0

 

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