Legal

Directors need to stay up to date with rules

With so much focus on the General Election in the United Kingdom, you could be forgiven for thinking that there wasn’t really much else happening with respect to Acts of Parliament and the Law. It would be wrong to assume that nothing has happened though because in March 2015, the Small Business, Enterprise and Employment Act was passed. If you are engaged in any of these areas, it is important to be aware of the new Act, which was brought in as part of the Coalition Government’s battle against red tape. We may no longer have the Coalition Government, but the Act remains in place and it brings about a few changes to businesses that should be borne in mind.

Directors need to stay up to date with rulesThere will be notable changes that come into play with respect to property, corporate law, insolvency and finance and some procedural changes will be put in place from Tuesday the 26th of May. Some of the proposed changes in the new Act will take a secondary legislation to be ratified but it is clear that changes are afoot and there will be potential areas to look out for.

Make sure that you are aware of all the rules and regulations

There is definitely a lot for Directors to look out for, and there are new changes which are likely to come into play from April of 2016. This may seem like a long way away, but time can creep up on you and when it comes to preserving your position as a director, it is best to ensure that you are on top of all of the rules and regulations.

It looks as though the new provision will see directors who have been deemed unfit to be involved with the management of one firm will be able to be disqualified from being a director or being involved with management of other firms. At the moment, administrators and liquidators only need to submit reports to the Secretary of State about directors if there is a suspicion that the director has been guilty of conduct that is not becoming of a director. This is a requirement that is commonly overlooked by some of the directors of firms that place a firm into administration and then utilise a pre-pack deal to buy the company back. It is important for directors in this position to be aware that the administrator, even an administrator that they have appointed themselves, could conclude their work by reporting the director with regards their conduct.

The rules on reporting will change

However, with the new act coming into force, there will be a provision that see a report being required on all directors of the firm, even if the administrator doesn’t believe that their conduct was unfit. This could lead to a lot more directors being challenged and ultimately disqualified if the report provides enough information to suggest that they didn’t always act in the best manner. It may be that the new Act will be considered to be the Director Disqualified Act, because there could be a lot of directors being placed at risk.

At the moment, it is possible for a disqualification order to be brought within a two year period of a company going into liquidation but the 2015 Act will extend this to a period of three years. Again, this is something that directors need to be aware of as it could have serious implications for them.

There will also be an extension of the factors that can lead to a director being disqualified. The new reasons will include overseas convictions and mismanagement while there will also be an opportunity to make disqualification orders against people who have influenced the conduct of a director who has been disqualified. The Act will also provide a provision for compensation orders to be made against directors where the directors action has caused at least one creditor to suffer a loss.

It is easy to say that if you are behaving with respect to the law that there is nothing to worry about, but things can often get out of hand quickly when running a business that is experiencing trouble. The fact that people who are seen to be influencing a disqualified directors decision are also facing pressure is a big step and should hopefully help to minimise this sort of behaviour.

Andrew Reilly is a freelance writer with a focus on news stories and consumer interest articles. He has been writing professionally for 9 years but has been writing for as long as he can care to remember. When Andrew isn’t sat behind a laptop or researching a story, he will be found watching a gig or a game of football.

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