Directors can be disqualified from acting as such either by statute or under the terms of the articles of association.
Statutory disqualification.
Under the Company Directors Disqualification Act 1986 the court may disqualify persons. Disqualified persons cannot, without leave, be a director, liquidator or administrator of a company or be a receiver or manager of a company’s property or in any way, directly or indirectly, be concerned or take part in promotion, formation or management for a specified period.
Conviction of an indictable offence. A director may be disqualified when convicted on an indictment or summarily, of an offence in connection with the promotion, formation, management or liquidation of a company, or receiveship or management of the property of the company. The maximum period of disqualification is five years (summary) or 15 years (on indictment).
Persistent breaches of companies legislation. Directors can be disqualified for breaches relating to any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the Registrar of Companies. Three or more defaults in five years constitutes a persistent breach. The maximum period of disqualification is five years.
Fraud and so on in winding-up. The court may make a disqualification order if a person:
(a) has been guilty of fraudulent trading, or
(b) has been guilty of fraud in relation to the company or breach of his duty (this includes shadow directors). The maximum period of disqualification is15 years.
Duty to disqualify unfit directors of insolvent companies
The court must impose a minimum disqualification of two years, if a person is or has been director of a company which has become insolvent and where his conduct as a director makes him unfit. Unifitness is defined as responsibility for the company becoming insolvent or for transactions which are voidable preferences. Other factors are taken into consideration by the court such as continuing to operate the company with a number of debts outstanding, general breaches of standard of care as a director for which an objective test is applied.
The liquidator, administrator or administrative receiver have a statutory duty to report to the Secretary of State if aware of evidence of a director’s unfitness. For this purpose, ‘director’ includes shadow directors. The maximum period of disqualification is 15 years. In Re Sevenoaks Stationers Ltd [1990] the Court of Appeal divided a 15 year period into three: ten or more years reserved for particularly serious cases, two to five years where the case is relatively not very serious, six to ten years for serious cases not meriting the top bracket.
The Company Secretary
Every company must have a company secretary. The first secretary is the person named in the statement of first directors and secretary filed with the Registrar before incorporation; subsequent appointments are made by the directors. The secretary may be an individual or a corporation but a corporation cannot be the secretary if its sole director is also the sole director of the company. A sole director cannot also be secretary.
The secretary of a private company is not required to have any professional qualifications but, for a public company, the directors must secure that the secretary either was a secretary of a public company before or who by virtue of his professional qualifications (as a chartered secretary, an accountant or a lawyer, or standing) appears to be capable of discharging the functions of a secretary.
The secretary is the chief administrative officer of the company and his duties include attending and minuting board and general meetings, authenticating certain documents, recording transfers of shares, keeping the company's books and registers and making necessary returns. The decision of Panorama Developments (Guildford) Ltd v. Fidelis Furnish Fabrics Ltd [1971]recognised that the secretary had ostensible authority to enter into contracts connected with the administrative side of the company's affairs 'such as employing staff, ordering cars and so forth’. Authority does not extend to commercial or trading contracts, and the company would not be liable for money borrowed in its name.
The secretary owes fiduciary duties to the company similar to those of a director and is liable to specific criminal penalties if he defaults in his statutory duties.