A comparative study on disqualification of company directors in the UK and Nigeria:. lessons for Turkey
| DOI | https://doi.org/10.1108/JFC-12-2019-0159 |
| Published date | 11 March 2020 |
| Date | 11 March 2020 |
| Pages | 549-568 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Samet Caliskan,Pereowei Subai |
A comparative study on
disqualification of company
directors in the UK and Nigeria:
lessons for Turkey
Samet Caliskan
Faculty of Business, MusAlparslan University, Mus, Turkey, and
Pereowei Subai
Faculty of Law, Niger Delta University, Amassoma, Nigeria
Abstract
Purpose –The purpose of this paper is to argue that the disqualification of directors, coupled with other
liabilities to which they may be subjected, particularly in insolvency, should be sufficient to deter
wrongdoing, because of the impact they tend to have on theirpersonal and professional lives. It, however,
argues that the “deterrence”effectwould be dependent on the existence of other factors such as the efficient
applicationof the law, publicity and post-disqualificationmonitoring.
Design/methodology/approach –Using the UK as its primary case study, while also making reference
to Nigeria and Turkey,this paper will show that while the existence of disqualificationas a sanction exists in
the first two countries,it is virtually absent from Turkey. Andthat while directors’disqualification provisions
are routinely applied in the UK, they are hardly invoked in Nigeria, except perhaps with respect to listed
companies,due perhaps to a lack of awareness of its existence or potency.
Findings –This paper will concludeby making a case for a stronger application of the law, as it relatesto
directors’disqualificationin the UK, call for an elaboration of the legal framework in Nigeria as well as the
need for a public awareness of its provisions and potential impact and contend that Turkey should put in
place a legal frameworkfor directors’disqualification patternedalso after the UK framework.
Originality/value –The uniqueness of this paperstems from its tri-country focus. In that respect, the UK,
which is a more advanced economy,with a robust and dynamic company law regime, is used as the primary
case study, whereas at the same time, developments in Nigeria, particularly with that country’s capital
market, will be extractedand compared with the UK framework. Turkey, on thecontrary, has been chosen as
a case study mainly because it has no directors’disqualification mechanism in its legalsystem. Comparing
directors’disqualification in one developing country, Nigeria, and a developed country, the UK and
determining their upsides and downsides will be beneficialto Turkey in respect to establishing a deterrent
effectivedisqualification mechanism on directors.
Keywords Company, Directors, Corporate governance, Disqualification, Deterrence
Paper type Research paper
1. Introduction
Globally, the registered company is unquestionably recognised as the dominant and most
widely used business form[1]. Although small enough to accommodate the small one man
business, it is particularly suited for large ventures which more often than not requires
entrepreneurs to rely not on their personal funds but on equity or debt capital supplied
either by financial institutions or by a large number of dispersed investors. One distinct
feature of the corporate form is that by default ownership is separate from management.
This arrangement enables companies to be managed by dedicated professionals, who are
Lessons for
Turkey
549
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 549-568
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-12-2019-0159
The current issue and full text archive of this journal is available on Emerald Insight at:
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primarily accountable to the company, but at the same time may be responsible to its
shareholders and at othertimes to its creditors.
These managers, who are called directors or governors, are neither liable for the
company’s debts and obligations nor for the actions they take in the name of the company,
provided they act professionally, competently and in good faith. This immunity is
necessary, if directors are to be proactive in running companies, take measured risks and
quickly exploit opportunitiesas they arise. The downside to it however is that directors may
not always operate in good faith,competently and with due diligence. They may abuse their
advantaged positions, break the law and violate the trust imposed on them by the firm, its
shareholders and its creditors, thus creating agency problems. Where any of the foregoing
occurs, they may find themselves subjected to civil sanctions. For example, they may face
civil litigation at the instance of the firm, or in other cases, by its shareholders or creditors.
This may entail directors being stripped of their immunity, and if such actions are
successfully prosecuted, civil remedies may be available against them, in the form of
damages, compensation or injunctions. Directors may also be subjected to administrativeor
criminal proceedings which may result in the imposition of criminal penalties or
administrativesanctions.
Among the civil or administrative sanctions to which directors may be subjected is that
of disqualification from office, usually for a period of time. This sanction where imposed
would make directors accountable, not only to their firms, and its relevant stakeholders,
such as its shareholders, creditorsand customers, but would furthermore seek to protect the
general public from their futureactivities. In effect, it would “bar”or “prohibit”such persons
from acting as directors of the particular company where the breaches occurred, as well as
from other companies (present or future). Because disqualification may have an economic
and reputational impact on the professional and personallives of disqualified persons, they
ordinarily should serve as a strongdeterrent factor from persons who undertake to manage
companies, from running them in violation of the law, and in a way that would harm their
long-term sustainability while motivating them to act diligently and competently. At the
same time, it should protect the firm, its shareholdersand creditors, from having their funds
managed by persons who by virtue of moral deficiencies, incompetence or personal
bankruptcy, should haveno business managing corporate concerns. That said the deterrent
effect of directors’disqualificationwould largely depend on several other factors. First and
of primary importanceis the robustness of the legal regime itself and the extent to which it is
enforced. Other factors include the extentto which the disqualification is made public, post-
disqualification monitoringand the creation of awareness of the existence of the sanction on
the part of directors, as well as on the company,regulators and its relevant stakeholders.
Using the UK as its primary case study, while drawinglessons from Nigeria, this article
will examine whether the disqualification of directors is having the desired impact in
deterring wrongdoing.It will thus explore the legal framework for directors’disqualification
and the mechanisms for the impositionof the sanction in both countries. The article will also
observe that while several countries the world over have sought to impose sanctions on
directors who violate their obligations, surprisingly, not all of them have enacted directors’
disqualification provisions. And to that extent, it will examine the Turkish framework,
particularly that country’s Commercial Code, which imposes sanctions for breaches of
directors’duties, and its CriminalCode, which penalises directors who indulge in fraud and
bribery, but doesnot have any directors’disqualification regime.
The article will note that that the UK disqualification regime is robust and elaborate,
while the Nigeria’s which was patterned after the UK Companies Act of 1985, is in need of
reform to suit it to tackle the current challenges which companies and shareholders and
JFC
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