Paul Beckett

Company Officers (Disqualification) Act 2009 (“CODA”) 16th February 2011  |  Posted by Paul Beckett in Companies Contact Paul

strong>1. Background to the Act

The Companies Act 1992 introduced the concept: Section 26 provided that the FSC could apply to the Court for an Order declaring an individual unfit

• To be a director or secretary of a company
• To be a liquidator of a company
• To be a receiver or manager of a company’s property • In any way, whether directly or indirectly, to be concerned or take part in the promotion, formation or management of a company “Unfit” was a matter for the Court to determine, but specifically included were convictions for dishonesty; conviction three times within 25 years of offences under the Companies Acts of the Isle of Man (or of equivalent provisions elsewhere); fraud, investment, insider dealing, insurance or fiduciary convictions; failure to rectify faults when having previously been ordered to do so by the Court.

The Companies Act 2006 extended the provisions of Section 26 to companies formed under that Act.
The power of the Court to require rectification of defaults under Section 26(4) has been preserved, but the remainder of Section 26 has been repealed, and replaced by the much lengthier provisions of CODA.  

2. Disqualification

The process of disqualification post 18 June 2009 (when CODA took effect) is set out in a memorandum produced by the FSC (attached).
The procedure before the Court has been set out in Part 13, Chapter 7 of the new Rules of the High Court of Justice. They can be accessed online at:

http://www.courts.im/lib/docs/courtservice/High_Court_Rules/Rules_of_High_Court/rhc13amended010610.pdf

Deemster Doyle set out the following principles in his judgment In Re Canty and Bannister 17.07.08:

• The primary purpose of section 26 of the Companies Act 1992 is to protect the public. The appropriate approach to an application for a disqualification order is not one of penalising or punishing a respondent but one of risk assessment. There is plainly a deterrent element to consider also.
• The burden of proof rests with the petitioner. Disqualification proceedings are civil proceedings and the appropriate standard of proof is the balance of probabilities.

• The Court should approach its task in two stages. First, consider each and every ground or charge and determine whether all or any of such grounds or charges have been proved. If and only I the Court is satisfied in respect of the grounds or charges in whole or in part can the Court then proceed to consider whether the respondent ought to be disqualified and if so from which offices and/or activities and for how long. Where there are two or more respondents the position of each respondent must be considered separately. The Court’s power to make a disqualification order is discretionary.

The question of whether a director is unfit is a question of fact. A decision of the Court in one case to disqualify or excuse a director is not necessarily a guide to the outcome of another case. Each case depends on its own facts and circumstances.