November 2010 - University of Johannesburg

{ 33 | DISCOURSE }of a company with limited liability shall,for a specified period, be prohibitedfrom doing so.” (Report of the ReviewCommittee on Insolvency Law andPractice, Cmnd.8558, 1982: para. 1808). In particular, they thought thelaw should “protect the non executivedirectors in large enterprises, whileseverely penalising those who abusethe privilege of limited liability byoperating behind one-man, insufficientlycapitalised companies.” (Ibid: para. 1815). They proposed a radical reform ofthe rules relating to the disqualificationof directors. Their proposals receivedstatutory embodiment and were soonconsolidated in the Company DirectorsDisqualification Act 1986. This is still theprincipal legislation in the UK.Grounds for bringing theapplication forwardThe grounds on which the applicationmay be brought forward differ dependingon who the applicant is. The 2008Act also contains a new remedy allowingcertain persons to apply to court for anorder declaring a director “delinquent” or“under probation.” This effectively meansthat persons subject to such orders aredisqualified from acting as directors forthe duration of the order and/or subjectto the terms of the court order. The company,a shareholder, another director, thecompany secretary or prescribed officer,a registered trade union or another representativeof the employees of a companyhas the right to apply to have a directordeclared delinquent or under probationon the following grounds:1. The person consented to serve as adirector, or acted in the capacity of adirector or prescribed officer, while heor she was ineligible or disqualified(S. 69).2. The person acted as a director whileunder probation (S. 77 (3)).3. The person, while serving as a director,grossly abused the position of director.4. The person took personal advantage ofinformation (S. 77 (3)).5. The person intentionally or by grossnegligence inflicted harm upon thecompany.6. The person acted in a manner thatamounted to gross negligence, willfulmisconduct or breach of trust.7. The person, while serving as a director,was present at a meeting and failedto vote against a resolution despitethe inability of the company to satisfythe solvency and liquidity test.8. The person acted in a mannermaterially inconsistent with the dutiesof a director.9. The person acted in or supported adecision of the company to act in amanner that was oppressive or unfairlyprejudicial.In addition to these grounds, the Commissionor Panel may also apply thedelinquent status or probation on thefollowing grounds (S. 162 (3)):1. Repeated non-compliance with apersonal compliance notice;2. The director has been convicted orfined administratively two or moretimes;3. The director was director of oneor more companies that have beenconvicted of an offence or subject toan administrative fine or similar penaltywithin five years.An organ of state may also apply onsimilar grounds, but only in respect oflegislation that it administers (S. 162 (4)).A delinquency order can, in certaincircumstances, last for a lifetime period ormay be subject to certain conditions. Inother cases, the order may besubject to certain conditions that thecourt will deem appropriate and willexist for a period of seven years from thedate of the order.Probation orders can also be made subjectto certain conditions that the courtwill consider to be appropriate and suchan order will exist for a period of five yearsfrom the date of the order.If the delinquency order is not for thelifetime of a director, then after a periodof three years have elapsed from the dateof the order, the director may apply tocourt to have the order suspended andsubstituted with a probation order. If thisapplication is successful, the director canwait a further two years and apply to havethe order set aside.On the other hand, if a director issubject to a probation order he may applyto court after two years have elapsed afterthe order was made, in order to have itset aside.The court will grant the application if itcan be shown that the director has progressedtowards rehabilitation and thatthere is a reasonable prospect that thedirector would serve successfully in hisoffice as director of a company again.As a new statutory provision, the courtmay also in both circumstances order thata director or former director concernedattend a “remedial education” programme,carry out community service or paycompensation to any persons “adverselyaffected” by their conduct. In the case ofprobation orders only, the court can alsoorder supervision by a mentor or that, inthe future, the director may only serveon the board of a private company or acompany where the director is also thesole shareholder (S. 162 (10)).