According to the latest figures from the Department of Trade and Industry, more than 900 directors were banned during this period, a 24% increase on the same time the previous year.
Melanie Johnson, competition and consumer affairs minister at the DTI, says the rise “is a direct result of the fast track process introduced by the Insolvency Act 2000.”
This new process, introduced last April, allows a director to give a written undertaking not to act as a director for an agreed period of between two and 15 years instead of fighting a lengthy court case.
This means that cases can now move forward by way of written undertakings rather than “being caught up in the court process,” explained Ms Johnson.
The minister said that it is vital that both consumers and the business community are protected from incompetent, irresponsible or rogue directors, as speedily as possible.
However, government and business organisations have stressed the importance of keeping a sense of perspective.
“The vast majority of companies in business today”, said Ms Johnson, “operate efficiently and responsibly with the result that, this year, less than one in a thousand directors are likely to be disqualified.”
Richard Baron, deputy head of the policy unit at the Institute of Directors, agrees. He commented that the rise in the number of director disqualifications is “nothing [for directors] to be frightened about.”
He points out that those disqualified still represent a very tiny proportion of the total number of directors in the UK.
Baron emphasises that the jump in this set of figures is a one-off leap reflecting the introduction of the fast-track scheme. This has allowed a quicker processing of candidates. He does not expect the same rise to occur again this year.
The main way a director may be disqualified, according to Baron, is by carrying out “wrongful trading”. This happens when a director can see that a company is going bust, but keeps on trading.
The Insolvency Service also cites the following examples of directorial deeds that could lead to disqualification:
* continuing to trade when the company is insolvent, to the detriment of creditors
* failing to keep proper accounting records
* failing to prepare and file accounts or make returns to Companies House
* failing to submit tax returns or to pay Crown taxes or other money due
* failing to co-operate with the Official Receiver or Insolvency Practitioner.
For further information, see: Guide to liquidation (winding up) and re-using a company name.
With thanks to Lloyds TSB Success4Business.
