Kerry Underwood

COMPENSATION ORDER REGIME FOR DISQUALIFIED PERSONS CONSIDERED FOR FIRST TIME

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In

Secretary of State for Business, Energy & Industrial Strategy v Eagling [2019] EWHC 2806 (Ch) (1 November 2019)

the High Court ordered a disqualified director to pay compensation equal to misappropriated company funds which founded his disqualification.

This is the first case brought by the Secretary of State under the compensation order regime, introduced on 1 October 2015 by sections 15A and 15B of the Company Directors Disqualification Act 1986.

The sections are now supported by Compensation Orders (Disqualified Directors) Proceedings (England and Wales) Rules 2016 (SI 2016/890) and the Disqualified Directors Compensation Orders (Fees) (England and Wales) Order 2016 (SI 2016/1047).

Similar provisions apply to compensation undertakings, the variation or revocation of which is covered by section 15C of the Company Directors Disqualification Act 1986.

The High Court acknowledged academic concern that the new regime conflicted with the Insolvency Act 1986 and the principle of pari passu, which has applied since the mid-nineteenth century.

The court provided directions for allocating the compensation, focussing on specific unsecured creditors whose loss directly benefitted the director by his misconduct, which it considered fair and appropriate on the facts.

The contribution element, for the loss of the company’s assets, was made payable to the Secretary of State rather than the liquidator.

The court analysed the regime, which was designed in the public interest to cover the entirety of the misconduct for which a person may be disqualified under the Company Directors Disqualification Act 1986.

The court held that the regime is free-standing and, as it is based on loss to individual creditors rather than the insolvent company, creates a new cause of action between a director and creditor.

Consequently, there was no direct correlation with the remedies available to creditors under the Insolvency Act 1986.

The judgment is a detailed analysis and explanation of the new law.

 

Sections 15A and 15B read as follows:

 

“(1) The court may make a compensation order against a person on the application of the Secretary of State if it is satisfied that the conditions mentioned in subsection (3) are met…

(3)   The conditions are that-

(a)   the person is subject to a disqualification order… under this Act, and

(b)   conduct for which the person is subject to the order… has caused loss to one or more creditors of an insolvent company of which the person has at any time been a director.

(4) An ‘insolvent company’ is a company that is or has been insolvent and a company becomes insolvent if-

(a) the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,

(b) the company enters administration, or

(c) an administrative receiver of the company is appointed.

(5) The Secretary of State may 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 ordered referred to in paragraph

(a) of subsection (3) was made…

(7) In this section and 15B… ‘the court’ means-

(a) in a case where a disqualification order has been made, the court that made the order…”.

 

Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies

Written by kerryunderwood

November 20, 2019 at 2:46 pm

Posted in Uncategorized

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