Latest implementation timetable and revised directors’ disqualification regime

The Small Business, Enterprise and Employment Act 2015 (SBEE Act) will impact all UK companies. Companies House has recently published a number of updates to the implementation timetable and some of the corporate provisions of the SBEE Act have either come into effect or are about to come into effect.  

In our March 2015 briefing, Corporate aspects of the new Small Business, Enterprise and Employment Act, we considered the main aspects of the SBEE Act and how it will affect companies and we included an estimated timeline in relation to the implementation of those provisions.  This briefing sets out the requirements of the new implementation timetable.

In our June 2015 briefing, The new PSC register – Draft regulations published by BIS for consultation, we considered the main points arising from a consultation paper seeking views on the draft Register of People with Significant Control Regulations 2015. We are still awaiting the Government’s response to that consultation and publication of the statutory and a non-statutory guidance which is to assist companies and people who might have significant control over a company to understand their legal obligations. That guidance is expected to be published in October 2015 and we will provide a further update when that guidance is available.

The latest implementation timetable in relation to the corporate aspects of the SBEE Act was published by Companies House on September 17, 2015 and is as follows:¹

October 10, 2015:

• The day element of a director’s date of birth will be suppressed on the public register.
• The time it takes to strike off the register companies which are not carrying on business or an operation will be reduced from three months to two months.
• The “consent to act as a director or secretary” procedure will be replaced. For newly appointed directors and secretaries, a statement will be added by Companies House to the relevant appointment and incorporation forms stating that the person has consented to act in their relevant capacity, which companies are required to agree to. As part of this, Companies House will write to newly appointed directors, making them aware their appointment has been filed on the public register and explaining their statutory duties

December 2015:

• There will be a simpler way to get falsely appointed directors’ details removed from the register and disputes might be made where it is found an appointed director did not consent to act in their appointment.
• There will be a new process to provide a remedy where a company is using an address for its registered office without authorisation.

April 2016 (previously January 2016):

• Companies will need to keep a register of people with significant control (a PSC register), in preparation for the need to file this information at Companies House from  June 30, 2016.

June 2016:

• There will be a requirement to “check and confirm” company information by filing a “confirmation statement”, and notify changes, if necessary, at least once every 12 months, replacing the current obligation to file an annual return.
• The PSC register, required to be kept from April 2016, will need to be filed at Companies House by June 30, 2016. Previously it had been stated that this obligation would apply from April 2016.
• Private companies will be able to opt to keep their registers of members, directors, secretaries, directors’ residential addresses and PSC register on the public register only, instead of having to maintain their own statutory registers.
• The disqualified directors regime will be updated and strengthened in relation to the reporting of director misconduct in insolvent companies.
• There will be simplification of the statement of capital which has to be filed at Companies House.

October 2016:

• A prohibition on appointing corporate directors will be introduced with some limited exceptions. Any company with an existing corporate director will need to take action and either explain how they meet the conditions for an exception or give notice to the Registrar of Companies that the person has ceased to be a director.

Late 2016/early 2017:

• Companies will be able to deliver certain categories of optional information to the Registrar.

As mentioned above, from October 10, 2015 amendments to section 1087 Companies Act 2006 (CA 2006) will permit the Registrar of Companies to omit the day of a director’s date of birth from the public register. However, the Registrar will be able to disclose that information to credit reference agencies (provided certain conditions are first satisfied by the credit reference agency) and the amended CA 2006 gives the Secretary of State the power to make Regulations setting out those conditions and allowing the Registrar to disclose date of birth information to specified public authorities.

The Companies (Disclosure of Date of Birth Information) Regulations 2015 come into force on October 10, 2015 and they set out the public authorities which may receive date of birth information. These include HM Revenue and Customs, the Director of Public Prosecutions, the Financial Conduct Authority, the Prudential Regulation Authority, the Serious Fraud Office and the Takeover Panel. Conditions for disclosure to a public authority include that it has confirmed to the Registrar that it intends to use the restricted information only to enable it to carry out a “public function”.

The Companies and Limited Liability Partnerships (Filing Requirements) Regulations 2015 also come into force on October 10, 2015. These introduce changes for limited liability partnerships (LLPs) and Societas Europaea (as well as unregistered companies and certain other entities) to mirror the amendments to the CA 2006 being made by the SBEE Act. Those changes include the following:

• The timescale for striking an LLP from the register is reduced from three to two months.
• A Societas Europaea will no longer need to complete “consent to act” forms for new directors, secretaries or members. Instead it will need to confirm the person has already consented to act.
• The date of birth of a member of an LLP or of a director of an unregistered company can be omitted from the public register and only disclosed by the Registrar in specified circumstances.

Regulations have now been published which bring into effect, from October 1, 2015, a number of amendments to the Company Directors Disqualification Act 1986 (CDDA 1986)². These include the following:

Matters to be taken into account in determining unfitness

The CDDA 1986 provides for the disqualification of directors, either by court order following the application of the Secretary of State, or a director offering, and the Insolvency Service (on behalf of the Secretary of State) accepting, an undertaking not to act in the management of a company for a period. Currently the court must take account of the matters in Schedule 1 to the CDDA 1986 when determining whether a director is unfit under the grounds for disqualification in sections 6 and 8 of that Act.

With effect from October 1, 2015, Schedule 1 is being replaced with a new, broader and more generic, provision extending the factors which will be considered when assessing conduct to include matters such as breach of any applicable legislation (including legislation applying outside the UK) or other requirement (previously the Schedule referred only to breaches of particular Companies Act provisions); responsibility for a company's, or an overseas company's, insolvency; the materiality and frequency of a director’s conduct, and the loss or potential harm to the company caused by that conduct. A key change is the addition of references to conduct in relation to other companies, including those overseas. The court or the Insolvency Service will have to take these into account in determining whether an individual should be disqualified and, if so, for how long. Generally, as a result of transitional provisions, these new factors will need to be considered in relation to a person’s conduct as a director where that conduct occurs on or after October 1, 2015.

Directors’ accountability for misconduct overseas

Currently a person who has been disqualified as a director overseas or has been convicted of a criminal offence in connection with the promotion, formation, management, liquidation or striking off of a company overseas is not prevented in law from acting as a director of a UK company.

As a result of changes to the CDDA 1986 from October 1, 2015, the courts will be required to take any overseas misconduct of this nature into account when deciding whether or not to disqualify a director in the UK.

In addition, the Secretary of State will now have the power to disqualify an individual from acting as a director in the UK if that person has been convicted of a criminal offence in connection with the promotion, formation or management of an company overseas.

Extension of disqualification regime to person instructing an unfit director

Where a director has been disqualified or has provided a disqualification undertaking to the Secretary of State, the court will also be able to disqualify anybody who the court determines has exercised “the requisite amount of influence” over that director. This will be the case where the court is satisfied that the conduct for which the director was disqualified or in relation to which the disqualification undertaking was accepted, resulted from that director acting in accordance with the person’s directions or instructions (other than in relation to advice given in a professional capacity). The maximum period for disqualification for such a person will be 15 years.

Again, as a result of transitional provisions, this new provision will only apply where the director’s conduct and the exercise by the third party of the requisite amount of influence occur on or after October 1, 2015.

Compensation awards against disqualified directors

The Secretary of State will now have the power to apply to court for a compensatory order to be made against a director who has been disqualified, where that director’s actions have caused identifiable loss either to specific creditors or to creditors generally. Compensation can be sought for conduct that occurs on or after October 1, 2015.

The Secretary of State will also be able to accept a compensation undertaking from a director against whom disqualification proceedings have been brought, or are proposed to be brought, where the director opts to offer an acceptable compensation settlement as an alternative to going to court.

The Secretary of State will be able to apply for a compensation order at any time before the end of the period of two years beginning with the date on which the disqualification order was made or the disqualification undertaking was accepted and the court and the Insolvency Service (acting on behalf of the Secretary of State) will have discretion to make any compensation award to a particular creditor, or group or class of creditors or the creditors as a whole.

The amount of compensation will be determined in accordance with guidelines having regard to the loss caused and any other contribution in redress.

Compensation awards will serve as a deterrent to directors and, at the same time, improve the position of creditors.

Increased time period for disqualification proceedings

Currently, proceedings to disqualify a director under the CDDA 1986 must be commenced within two years of the date of the first insolvency event, unless the court orders otherwise. With effect from October 1, 2015 that period is being increased to three years.

Reports on directors' conduct

Currently, liquidators and administrators of insolvent companies only submit a report on the conduct of a director to the Secretary of State if they consider a director has acted in a way which makes them unfit to be concerned in the management of a company. Under the new section 7A of the CDDA 1986, it will become obligatory to report on all directors in relation to matters which may assist the Secretary of State in deciding whether it is in the public interest to apply for the making of a disqualification order, within three months of the insolvency date together with further updates if new information comes to their attention.

Assignment of actions

As well as introducing compensation orders, further measures aimed at promoting accountability and improving returns to creditors in corporate insolvencies will come into effect from October 1, 2015. For example, the existing power for a liquidator to bring fraudulent or wrongful trading actions is being extended to administrators, to dispense with the need to place a company into liquidation for the purpose of pursuing such actions. Office-holders will also be able to assign rights to bring such actions, as well as clawback rights of action, including transactions made at an under value or preferring a particular creditor. It can often be the case that the time and costs involved in a liquidator or administrator litigating such a claim, which may or may not be successful, would not be in the interests of all the creditors, but where a particular creditor, or third party, is interested in taking that claim on, the office-holder will be able to assign the right to do so for a fee which the general creditor group can receive the immediate benefit of.

The changes to the directors' disqualification regime, including the broader grounds for disqualification, increased levels of reporting, extended time periods for taking action, and introduction of creditor compensation, are intended to restore public confidence and give real teeth to the regime.

The remainder of the corporate aspects of the SBEE Act are not coming into force until 2016 but we will continue to provide updates as and when there are further developments, particularly in relation to the statutory and non-statutory guidance concerning PSC registers which is expected to be published shortly.