The seven-year director disqualification handed out to Terry Venables has provoked much media comment and is yet another example of the Department of Trade and Industry's (DTI) increased activity in this area.
There has been a huge increase in the number of disqualified orders being sought. In 1995, there were over 700 – double the number sought in previous years. In 1996-97 there were over 1,000.
Although the majority of disqualifications relate to an insolvency situation, this is not always the case. Moreover, with disqualifications ranging from two to 15 years, there is some scope for "plea bargaining".
A procedure known as "Carecraft" – following Re Carecraft Construction Co (1993) – exists to help directors agree their period of disqualification with the DTI and avoid the costs of a full-blown trial. The prosecuting authority will always consider such orders although final approval rests with the courts.
Two recent developments have loaded the scales against errant directors. Firstly, the inevitable clamp-down on legal aid has led to a reduction in grant assistance. Wayward directors who have fallen on hard times must show "something out of the ordinary" for legal aid to be granted.
Secondly, some directors want to avoid a formal disqualification order and offer to give undertakings to the court and the DTI, agreeing not to act as directors or take on company management roles for a fixed period of time.
However, the court emphasised that undertakings would only be appropriate in "special circumstances" such as in the Secretary of State for Trade and Industry v Cleland (1997), where an elderly and infirm director was able to give such undertakings.
The good news for directors is that delays of more than one year may justify an application to strike out. This was reiterated in the Secretary of State for Trade and Industry v Tjolle (1997), when the court indicated that proceedings should move forward swiftly. It also said the Secretary of State should consider whether to proceed with small cases of no public interest if such delays had taken place.
Directors of insolvent companies must be on their guard as the Government increases pressure in keeping with the move towards removal of protection of limited liability.