Applications to disqualify nine directors after Farepak investigation
It was announced on 15 February 2011 that the Insolvency Service has applied to the High Court, on behalf of the Secretary of State for Business, Innovation and Skills, for disqualification orders to be made against nine individuals in relation to their conduct as directors of European Home Retail Group PLC and/or Farepak Food & Gifts Limited (Farepak).
Farepak, which operated a Christmas savings club, collapsed in October 2006. As Farepak (lawfully) operated an unregulated savings club, there was no compensation mechanism for customers.
One of the former directors subject to the disqualification application is Sir Clive Thompson, the former chief executive of Rentokil Initial plc, a former President of the Confederation of British Industry and a former Deputy Chairman of the Financial Reporting Council. Another of the former directors subject to the application is Neil Gillis, who recently stepped down as chairman of Blacks Leisure plc.
Grounds for the disqualification of directors
The Company Directors Disqualification Act 1986 (the Act) sets out several grounds for the disqualification of directors. These include disqualification:
- On conviction of an indictable offence in connection with a company (section 2 of the Act).
- For persistent breaches of companies legislation requiring a return, account or other document to filed with the registrar of companies (section 3).
- For fraud in relation to a company (section 4).
- In relation to an insolvent company, as a result of conduct making him unfit to be concerned in the management of a company (section 6).
- After investigation of a company, if it is expedient in the public interest (section 8).
- For breach of competition law (section 9A).
From the wording of the Insolvency Service press release, it appears that the disqualification application in this case is based on section 8 of the Act, which states that “if it appears to the Secretary of State from investigative material that it is expedient in the public interest that a disqualification order should be made against a person who is, or has been, director…he may apply to the court for such an order”.
Investigation under the Companies Act 1985
In this section 8, “investigative material” includes information or documents obtained under section 447 of the Companies Act 1985 (the 1985 Act). Section 447 of the 1985 Act gives the Secretary of State the power to require documents or information from a company or person. (Section 447 is one of the few provisions of the 1985 Act which remains in force following the commencement of the Companies Act 2006.)
Consequences of a disqualification order
If an order is made by the court, a person may be disqualified from being a director of a company or in any way, directly or indirectly, being concerned in the formation, promotion or management of a company; the maximum period of disqualification under the Act is 15 years.
UPDATE: The disqualification action will now be against seven, not nine, former directors, as two former directors have accepted disqualification orders.
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