Author: Guy Thomas The recent coverage concerning the “Pheonix 4”, and especially the comments of Business Secretary Lord Mandelson, might lead people to believe that the directors concerned were facing the imminent threat of a life ban from acting as directors. In reality, it would be surprising if the directors concerned were subsequently found to be “unfit” to act as directors and banned from acting as directors in the future for anything more then five years (if at all). The Companies Act 2006 provides that a director’s primary duty is to promote the success of the company for the benefit of its shareholders’ members’ as a whole.  However, where the company is in financial difficulties and is likely to become insolvent, the directors must also have regard to the interests of the company’s creditors. The Insolvency Act 1986 contains various concepts such as fraudulent or wrongful trading, which, if applicable, qualify a director’s primary duty. A finding of fraudulent or wrongful trading would also be relevant to the possible application of the Company Directors Disqualification Act 1986 (CDDA 1986) and is almost certain to lead to the disqualification of a director. Under the CDDA 1986, the court has the power to disqualify directors from acting as such, or being involved with the management of a company, for a specified period of time, the minimum period being two years. The grounds for making disqualification orders under the CDDA 1986 include where the court is satisfied that the director’s conduct makes him “unfit to be concerned in the management of a company”. In considering whether to make a disqualification order, the court will look to see whether there has been dishonest conduct, whereas ordinary commercial misjudgements would not be enough to justify disqualification. Practical considerations Directors should monitor the financial position of their company carefully and regularly review the management accounts. If concerned seek early advice from a specialist. Hold regular board meetings and keep appropriate minutes. Be aware that the directors’ conduct will be scrutinised later in the event of insolvency. If in doubt, avoid taking on further credit other than in the ordinary course of business and take action to ensure that as far as possible no further debts are incurred and avoid “vulnerable transactions”.

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Do the “Pheonix Four” Really Face Disqualification as Directors?

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