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Transparency in UK Company Ownership - Insolvency Aspects of the BIS Proposals.

On 21 April 2014, the Department of Business, Innovation and Skills (BIS) issued the Government’s proposals on "Transparency and trust: enhancing the transparency of UK company ownership and increasing trust in UK business".  The full report can be viewed here however there are some aspects of the proposals likely to interest those of us involved in Insolvency.

Director Disqualification

The government plans to amend the Company Directors Disqualification Act 1986 (CDDA 86) which it believes to be outdated and fails to cover the breadth of misconduct that may occur.   The proposals include “broader and more generic provisions”, and inserts additional factors that must be considered in director disqualification proceedings.  Such factors as the director’s track record, culpability, the impact of his/her behaviour, and any material breaches of a regulatory regime, must be taken into account in determining whether a director is to be disqualified and if so, for how long.

The aim of the new ‘generic’ provision is to encourage the court and Secretary of State to take into account any form of misconduct and to avoid the possibility or the perception that the list of factors in schedule 1 to the CDDA 86 is limiting, meaning other factors might not be considered.

Misconduct in relation to overseas companies will also be considered in whether or not to disqualify a director.

The time limit for commencing disqualification proceedings is to be extended from 2 years to 3 years from the date of the earliest insolvency event.  One of the identified aims of the increase was to reduce the number of protective proceedings issued because of the relatively short two year period currently available.  It was felt unnecessary to make the period any longer than 3 years, bearing in mind that you can still seek leave to bring disqualification proceedings out of time where necessary.

Compensation Orders

In the event of a director’s misconduct, the Secretary of State will be able to seek a court order against a director to compensate those suffering identifiable loss as a result of the director’s misconduct.  Compensation can be awarded to an individual creditor, class of creditors, or the body of creditors as a whole.

The Secretary of State will also be able to accept an undertaking in respect of such compensation from directors as an alternative to going to court, or in settlement of court proceedings.

The legislation will include provisions detailing the factors that a court or the Secretary of State must consider in determining identifiable losses suffered by creditors. 

Assignment of Causes of Action

There are also proposals to allow Insolvency office holders to assign causes of action arising under the Insolvency Act 1986 (IA 86) that at present, only the office holder can pursue.  Claims for fraudulent or wrongful trading, transactions at an undervalue, preferences, and extortionate credit transactions could be sold or assigned to a creditor or other third party by the insolvency office holder.

It is also proposed that administrators be given the same right as liquidators to bring claims for fraudulent or wrongful trading against directors without first incurring additional cost in placing the company into liquidation.  Administrators will also be able to assign such claims.

The Government considered concerns raised about unwarranted or opportunistic claims being brought against directors but have stated that they expect Insolvency Office Holders to have regard to existing professional and ethical standards in deciding when to assign such actions.  This is relatively straightforward where the IP identifies a potential claim but does not have the resources to pursue it and is therefore happy to assign it, but it is less clear where a creditor or third party seeks assignment of a purported claim that the IP believes is unwarranted and therefore refuses to assign.  One hopes that the legislation when it is introduced provides for a mechanism to deal with that potential conflict.


Many of these proposals will require primary legislation to be enacted.  The government intends legislate when parliamentary time allows so there is no certainty as to when the proposals will become law.  We will endeavour to provide any further updates on these proposals as and when they become available.

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