October 04 2010
It is more than 12 months since the Isle of Man's new statutory disqualification regime came into force. The regime has had an immediate impact on the way in which delinquent directors are dealt with on the island.
The Company Officers (Disqualification) Act 2009 became law on the Isle of Man on June 18 2009. This replaced Sections 26 and 27 of the Companies Act 1992, which had previously been the main enabling provision under which the Manx courts disqualified company officers whom it deemed unfit to hold such office. The 2009 act updated the disqualification provisions and introduced some new procedures. One of the most significant changes to be introduced was the empowerment of the Financial Supervision Commission to accept disqualification undertakings in lieu of having to issue court proceedings. This allows uncontested cases to be dealt with between the individual and the commission, thus saving time and costs in a procedure similar to that which was already in place in the United Kingdom.
More than one year on, it is interesting to assess how the disqualification undertaking has transformed the way such cases are handled. In the 10-year period before the new act took effect, 37 disqualification orders were made in court. No applications for disqualification orders were made between 1992 and 1999.
Given that one of the principles underpinning the court's power to make disqualification orders was the deterrent value, it was always likely that, after a flurry of high-profile disqualification orders, a quieter spell would follow. Thus, the courts wanted to send the message to companies and their representatives that certain directorial standards must be observed in the Isle of Man.
Since the act was introduced, five cases have been dealt with by way of disqualification undertaking, while just one has been heard in court. Enforcement activity, therefore, has certainly continued, but in the majority of cases the commission has not needed to trouble the courts. Under the new act the commission keeps a register of disqualification orders and undertakings.
It is expected that the regulator will continue to take action where necessary. The commission's annual report for 2009-2010 shows that the commission has remained vigilant. The commission's chief executive John Aspden stated in the annual report that the worldwide climate was such that regulation was always an ongoing issue. He stated:
"At a time when smaller jurisdictions continue to attract international scrutiny and the public is demanding effective oversight, it is essential for our future that we measure up to the demanding standards expected of us."
The act has also placed a greater onus on insolvency practitioners to consider questions regarding the possible unfitness of those holding corporate office. This has meant that liquidators have had to consider these points in liquidations and, where appropriate, report to the commission.
Overall, a year after its enforcement the act can be seen to have had a positive effect on the Manx disqualification regime and resulted in savings of time and cost.
For further information on this topic please contact John T Aycock at M&P Legal by telephone (+44 1624 695800), fax (+44 1624 695801) or email (firstname.lastname@example.org).
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John T Aycock