Prosecution and disqualification

April 2004 

13.116 Prosecution for failure to co-operate under s235

As discussed in Parts 4 and 5 enforcement of a duty to co-operate may generally best be achieved by holding a public or private examination or by obtaining a specific order of the court for compliance with a particular duty.

A company officer or partner where the partnership has been wound up as an unregistered company (but not a bankrupt - see Part 2) may be prosecuted under section 235(5) for failing to comply, without reasonable excuse, with any obligation imposed by section 235. A prosecution will normally be undertaken only in conjunction with proceedings for other offences. In exceptional circumstances, where there has been a serious or persistent breach of duty by some responsible person or other procedures are impracticable, then after prior consultation with the Authorisations Team the prosecution of a company officer under section 235(5) may be considered appropriate. Where this is so the official receiver will need to note paragraph 13.27 as to "reasonable requirement" and "reasonable excuse" and consider the technical requirements of section 235.


13.117 Prosecution for failure to submit a statement of affairs

Note: [s131(7)]

A company officer, (but not, as noted above, a bankrupt) may be prosecuted for failure, without reasonable excuse, to submit a required statement of affairs, the penalty for which is a fine, and for continued contravention, a daily default fine. It is unlikely that the Department would prosecute an alleged offence under this section, but where exceptionally the official receiver believes that a prosecution would be desirable, he/she should consult the Authorisations Team. Such a failure may also be considered for disqualification purposes (see paragraph 13.119).


13.118EA Other offences in bankruptcy or winding up

While this chapter deals only with matters relating to the enforcement of the duty of co-operation, the official receiver should at all times bear in mind the possibility of the commission of offences, in a winding up under sections 206 to 211 and in bankruptcy under sections 353 to 362 before 01 April 2004. Post 1 April 2004 the EA2002 section 263 repeals sections 361 and 362 and the failure to keep records which account for a loss by the bankrupt and carrying on gambling/rash and hazardous speculation instead become matters for consideration by the court in the making of a bankruptcy restrictions order (see Part 12).

In connection with the duty of co-operation, the official receiver should particularly note the provisions of section 208 in a winding up and sections 353, 354, 355 and 356 in bankruptcy, which deal with the disclosure and delivery of property or records as appropriate.

Notes: [EA2002 s263]


13.119 Disqualification

Where the official receiver considers that the conduct of an uncooperative director or partner (where the partnership has been wound up as an unlimited company) amounts to evidence of unfitness, this should be taken into account when he/she reports to the Authorisations Team on the conduct of the director/partner

Notes: [CDDA86 s6 & sch 1 paragraph 10(g)] [IPO94 art 16 & sch 8]

A report where the only matter of misconduct is non co-operation should only be submitted in exceptional cases .

Where non co-operation is alleged as the sole matter of unfitness in a disqualification report there must be significant and demonstrable detriment to the estate resulting from the non co-operation e.g. significant assets that cannot be realised. It is not enough that the official receiver's duties have been made more difficult to discharge by the lack of co-operation from the director/partner. The official receiver must also have taken all the measures available to him/her to enforce co-operation and to obtain the information required from other sources before relying on non co-operation as a sole allegation.


13.120 Use of compulsive powers by official receivers in disqualification cases

Note: [s236]

The Court of Appeal in the case of Pantmaenog Timber Company Limited (Pantmaenog) reported at Official Receiver (Apellant) v Wadge Rapps & Hunt (a firm) and another and two other actions [2003] UKHL 49 held that the official receiver could use the compulsive powers under section 236 for the purpose of considering and conducting disqualification investigations and proceedings, but that those powers are subject to the discretion of the court as to whether to allow their use in such circumstances.

The Insolvency Act 1986 and the Company Directors Disqualification Act 1986 form part of the same statutory regime and should be read together. The procedures exist for the protection of the general public, and not just to protect the interest of the creditors and shareholders of the company in liquidation. Consequently the powers conferred on liquidators and the official receiver are not limited to use only in connection with the collection and distribution of assets but may also be used to gather information so that liquidators can report to the Secretary of State as they are required to do, and the official receiver can carry out his/her investigative and reporting functions which include making a report to the Secretary of State under CDDA86 section 7(3).

Notes: [CDDA86 s 7(3)]

Consideration of the use of section 236 solely for the purpose of disqualification related investigations should be the exception rather than the rule. It will mostly be appropriate where a bank/solicitor etc is willing to provide the information but only subject to a court order. In the period prior to the issue of proceedings, and particularly in cases targeted for an investigation aimed at the preparation of a draft disqualification report, great care should be taken when considering whether to use section 236 against directors or their associates or advisors. In these circumstances if the official receiver has any concerns that the application could be construed as being solely for the purposes of a disqualification, the Authorisations Team should be approached for advice before the application is issued.

In cases where disqualification proceedings have been issued the usual means of obtaining further information to assist in the conduct or further consideration of the proceedings will be by use of a witness summons in the disqualification proceedings rather than by use of section 236 in the liquidation. If the official receiver wishes to use section 236 for this purpose post issue of disqualification proceedings, the Authorisations Team should be approached for advice first.

Note: [s235]

The ruling in the case of Pantmaenog did not deal directly with the use of section 235 to obtain information solely for the purposes of disqualification proceedings, but the same considerations apply. However, an application to court is not required for the use of this power, and so there is not the safeguard of the exercise of the court's discretion in this instance. Consequently the official receiver must be able to demonstrate that the powers conferred by section 235 are not being abused or used oppressively.

In the following situations where the official receiver uses or threatens section 235 (whether it is mentioned specifically to the director or not) the director concerned must be informed at the time why the information or interview is being sought;

a. at any time in the investigation or proceedings where the request for information or attendance is solely for the purpose of a disqualification matter,

b. at any time after the case has been targeted on Register B for submission of a draft disqualification report, irrespective of whether the request is only partially for the purposes of disqualification.



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