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Changes to the Director Conduct Reports

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2016 will see the current director conduct report issued by office-holders during insolvency proceedings replaced by a single online form submitted by the office-holder to the Secretary of State.

Starting next year, the current director conduct reports; statutory D1 & D2 forms, will be scrapped and replaced with this new streamline report. This new report will mean that office-holders will no longer have to confirm if a director appears to them to be unfit but instead this will be decided upon by a “rules” engine created for the new report system. This will make the initial decision of what cases should be considered for further investigation.

Submitting this report will now take place within 3 months of a company’s insolvency date; which is 3 months earlier than the current time frame for the reports. These changes are said to help aid in the strengthening and improvement in the services the insolvency regime provides.

The new streamline report is at present going through testing and will incur further detailed analysis over the coming months to ensure it is ready for the change next year.

 

Director Misconduct Figures Q2 2015

During quarter 2 2015, 309 directors were disqualified with an average disqualification time of 6yrs. It has also been discovered that the most common reason for these disqualifications were due to the unfair treatment of HMRC compared to other creditors.

During this same quarter, the percentage of disqualifications that received the higher tariff disqualification which is 10-15 years rose from 12% in Q2 2014 to 16% in Q2 2015.

A few examples of recent cases involving director disqualifications receiving the highest tariff ban are as follows:

Example 1: A director of a mobile phone and computer component wholesaler was disqualified for 13 years for engaging in a scheme linked to VAT fraud and making wrongful VAT reclaims, resulting in a claim in the liquidation proceedings by HMRC of over £91m

Example 2: An accountant was banned for 11 years for failing to keep proper accounting records or deal with the tax affairs of both his companies

(figures from The Insolvency Service)

Fiduciary Duties of a Director

Company directors; both executive and non-executive, have a fiduciary duty and a duty of care to the company and the different parties involved with said company. The statutory and general duties of a company director in the UK can be found in the Companies Act 2006 and include the following:

  • A duty to act in accordance with the powers set out in the company’s articles
  • A duty to promote the success of the company for the benefit of its members
  • A duty to exercise independent judgment
  • A duty to exercise reasonable care, skill and diligence
  • A duty to avoid conflicts of interest
  • A duty not to accept benefits from third parties
  • A duty to declare to the company’s other directors any interest a director has in a proposed transaction or arrangement with the company

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