Disqualification of Directors due to actions abroad

Last year, the UK Department for Business, Innovation and Skills (“BIS”) published a discussion paper entitled: ‘Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business’ (the “Consultation”). As part of the Consultation, BIS was seeking feedback on a number of key proposals including amending the Company Directors Disqualification Act 1986 (“CDD”). As part of the amendments to the CDD, the Consultation put forward proposals allowing additional factors to be taken into account in director disqualification proceedings and to enable the UK disqualification of directors already guilty of misconduct in relation to overseas companies. The Consultation recognised that in the globalised economy, the current legal framework did not sufficiently reflect the implications of directors’ actions abroad.

In the Government’s recent response to the Consultation, BIS stated that when Parliamentary time allowed they would amend the CDD to:

• require courts to take any overseas misconduct into account when deciding whether or not to disqualify a director in the UK; and
• to provide the Secretary of State with the power to disqualify an individual from acting as a director in the UK when convicted of a criminal offence in connection with the promotion, formation or management of a company overseas, as he currently can for those convicted of a criminal offence in the UK

In addition, the response to the Consultation stated that BIS has commissioned research into director disqualification and sanction regimes in other jurisdictions to consider whether to make regulations under Part 40 of the Companies Act 2006 (covering foreign disqualification) to prevent directors restricted overseas from acting as directors in the UK. Responses to the Consultation suggested that the introduction of regulations under Part 40 would be supported in principle, provided such disqualification was not automatic.

These potential amendments to the existing legislation are of particular note in today’s globalised corporate environment, where executives are increasingly being mandated to supervise subsidiary operations across entire regions. Such executives are often mandated to hold board positions in subsidiaries based in a range of jurisdictions, and this can occur without those individuals being given the chance to fully apprise themselves of the directors’ duties or other obligations which will apply to them as executives of companies in those jurisdictions. The Consultation is a timely reminder that undertaking any board position should not be a decision taken lightly - an inadvertent breach of local regulations, perhaps due to a lack of familiarity with the local rules which may apply, has potential ramifications in the UK.

Despite no timeline being in place for the introduction of such amendments to the existing legislation, directors of companies in foreign jurisdictions should be aware that their conduct has the potential to be taken into account. It would factor as a consideration for both being disqualified from acting as a director of a UK company in the first instance, and as an additional factor should the court consider disqualifying them on the basis of their actions as a director in the UK. Such potential legislative amendments reinforce the importance of complying with director’s duties regardless of the jurisdiction.