Disqualification of Directors: A Plea for Competence

DOIhttp://doi.org/10.1111/j.1468-2230.1990.tb01821.x
Publication Date01 May 1990
AuthorVanessa Finch
May
19901
Disqualification
of
Directors
and
subpoenas dues cecum
are the compulsory instruments by which the courts secure
the evidence necessary for the determination of the truth. It is no answer to a
subpoena
to say that one is bound in contract or in honour not to tell what the court wants to know.
Legal professional privilege entitles lawyers and their clients to keep their communications
to themselves. They are thus immune from compulsory However, once the
material has got out, it should not be kept out of court on account of its confidential nature
any more than would any other confidential information. Confidence as such has never
conferred an exemption from testifying or from producing relevant documents.
Disqualification of Directors:
A
Plea for Competence
Vanessa
Finch
*
Three recent cases show that the courts are still struggling to develop a coherent rationale
for the disqualification of directors for unfitness.’ Past hopes2 that the 1986 legislation3
would provide greater protection for creditors and investors against incompetent management
are, it appears, not being fulfilled. The key problem left unsolved
is
that of dealing adequately
with certain kinds of directorial deficiency.
Very different types of directors’ misconduct were involved in the three cases under
discussion. In the first,
Re Zpcon Fashions Ltd
the director exhibited what Hoffman J
described
as
‘a certain cunning in dealing with his suppliers and disposing of assets.’5
The director, a Mr Hava, had conducted business in the clothing trade through the medium
of four companies over a period of nine years. The first company went into insolvent
liquidation in 1977. The second company started trading immediately, only to go into
liquidation in December 1980 owing
543,000.
The third company (Lorenzo Fashions Ltd)
lasted until May 1985, and on winding up owed
5120,000
(f25,000 of which were Crown
debts). The fourth company
-
Ipcon Fashions
-
actually traded from the same premises
and indeed under the same ‘Lorenzo’ name from May 1985, but by 1986 sales had drastically
declined and by July 1986 Ipcon was ‘obviously’ insolvent.6 Mr Hava thus decided to
wind up Ipcon, but between July and October 1986 (the date of the winding up order),
despite virtually no business being conducted during that period, and despite PAYE and
VAT remaining unpaid, Mr Hava, his wife, and two other employees received weekly
salaries. In the meantime, Mr Hava was trading again this time under ‘Lorenzo London
Ltd’
-
a company still surviving at the time of the application under section 6 of the
Company Directors Disqualification Act 1986 (CDDA), though according to its latest
accounts, already of dubious profitability. Hoffinan J seemed to have no hesitation in finding
25
This immunity may extend
to
third parties, such as the consultants in the present case, who were recruited
to help with the preparation of a case for trial.
*Lecturer in Law, London School of Economics.
1
2
Company Directors Disqualification Act 1986 (CDDA),
s
6
(replacing Companies Act 1985 (CA),
s
300).
See
generally Sealy,
Disqualificaton
and
Personal Liabiliry
of
Directors
(CCH Editions Ltd, 1989, 3rd
ed).
See Drake, ‘Disqualification of Directors
-
The “Red Card”’ [I9891 JBL 474, 490. Farrar,
Company
Law
(Buttenvorths, 2nd ed, 1988), p388. Gower,
Principles
of
Modern Company
Law
(Stevens, 4th ed,
1988, Second Cumulative Supplement, p98).
eg CDDA 1986,
ss
6 and
8,
Insolvency Act 1986 (IA)
s
214.
3
4
(1989)
5
BCC 773.
5
ibid
775.
6
ibid
774,
per
Hoffman
J
‘it
must have been obvious to Mr Hava that the company was insolvent.’
385

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