The Gazette 1995

GAZETTE

MAY/JUNE

1995

of Appeal with the disqualification period dependant on the gravity of each case 19 . The fixing of a time frame by the legislature here has therefore eradicated such inconsistencies arising in the application of section 150 on a case By case basis. The first aspect to be noted in relation to a restriction order is that it will not only apply to a director taking up a fresh appointment with a company, but also is applicable to any other companies in respect of which that director is already acting at the time of the making of the restriction order. A director having been restricted may however continue to act, or take part in the formation or promotion of other companies if these companies meet the capital requirements of the section 20 . These are that the value of the nominal share capital of the company in which the restricted person is involved, must be at least £100,000, (in the case of public limited company), or £20,000, (for other companies). The Minister 21 may vary the amounts 22 and the amounts for companies of a different class or description 23 . These shares must be fully paid up and in cash. Allottees to these shares, or their subsequent holders 24 , who do not pay the full amount are liable for the full amount of the share and any interest

specified in subsection (2), declare that a person to whom this Chapter applies shall not, for a period of five years, be appointed or act in any way, whether directly or indirectly, as a director or secretary or be concerned or take part in the promotion or formation of any company unless it meets the requirements set out in subsection (3); and, in subsequent provisions of this Part, the expression "a person to whom section 150 applies" shall be construed as a reference to a person in respect of whom such a declaration has been made. First it is notable that the restriction is mandatory and that the onus of proof is squarely placed on the directors to show that they should not be subject to a restriction order. This provision to an extent contrasts with the position in respect of director disqualification. There mandatory disqualification subsists against a director who is convicted of an indictable offence involving the company, fraud or dishonesty 12 , while in all other instances disqualification is at the court's absolute discretion' 3 . Indeed where liability is sought to be imposed against an officer of a company for fraudulent or reckless trading l4 , disqualification is still at the Court's discretion. Secondly, the period of the restriction is invariable at five years, regardless of the situation and appears to run from the date of the declaration 15 . Again this element of the restriction provisions contrasts with disqualification where the period of disqualification is ultimately at the discretion of the Court 16 . In the UK disqualification of a director of an insolvent company found to be, Nature of Restriction

extent the rationale behind the legislation on restriction and the situation "whereby a fly-by-night director liquidates one company, leaving a trail of unpaid creditors behind, and then turns up in the business the following day, in the same premises with nothing having changed except perhaps the name over the door" 28 . An obvious drawback to the legislation is that a winding up will have to have occurred. Consequently a company that merely ceases trading will not be affected by the provisions of Chapter 1, unless a creditor or member of the company goes to the expense to see that the company is wound up. It should be noted that the wording of section 150(1) prevents directors from continuing to act, as well as starting to act and hence a director of a number of companies, one of which is in an insolvent liquidation, leading to his restriction, will have to bear in mind the notification provisions of the Chapter 29 , (see below). A restriction order however does not preclude a person taking part in the management of a company 30 . ". . . is appointed or acts in any way, whether directly or indirectly, as a director or secretary or is concerned in or takes part in the promotion or formation or that company" 3I are themselves curtailed by the Act. However persons subject to such a restriction order are not to take on such an appointment or so act unless they have notified the company's registered office 14 days prior to their appointment or so acting that they are so restricted 32 . These "section 150(3) companies" are, first precluded from availing of the provisions of section 60 of the Principal Act 33 and thereby the giving Restrictions on Section 150(3) Companies Companies to which any person the subject of a restriction order,

therein. Provision will be made however for any consideration

applied 25 . These liabilities do not apply to the allotment of bonus shares unless the allottee,

". . . knew or ought to have known that the share was so allotted. " 2h

It should be noted that the capital requirements equally apply to companies in which "restricted" directors are already a part of, and not merely companies they may in the future become concerned with. Consequently, a director at the time of his restriction order on the Board of another company that already meets these financial requisites will have to notify that company of his restriction order 27 .

. . unfit to be concerned in the management of a company'" 7 ,

ranges from a minimum of two years up to a maximum of fifteen years 18 . While this may seem more equitable and pragmatic, experience showed that such leeway lead to inconsistencies. Consequently a set of parameters was drawn up by the Court

of financial assistance for the purchase of shares unless the company's ordinary course of

These requisites as to the financial structure of a company are to a large

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