New Director Conduct Assessment Service – will this mean more disqualifications?

Any appointed Liquidator (CVL) or Administrator is obliged to submit a report to the Secretary of State regarding the affairs of the insolvent Company and also the conduct of its directors.

From 6 April 2016 the way in which insolvency practitioners report this information to the Secretary of State is going digital.

The new online process will replace the old D1s and D2s forming a modern and more streamlined approach to data gathering.

The Insolvent Companies (Reports on Conduct of Directors)(England and Wales) Rules 2016 were announced in February this year and come into effect from 6 April 2016. Any companies made insolvent prior to this date will be governed by the old rules meaning there will be a transition period up to September, as the last of these cases are processed.

Of particular importance, we think, is that the new process will remove opinion from the reporter as criteria will be standardised.   So the insolvency practitioner no longer has to give an opinion as to whether director is fit or unfit to be a director and thus prompt the Secretary of State will instigate disqualification proceedings.   It will be more structured and easier to use, resulting in earlier reporting by three months. It will also cut down on work duplication i.e. if a company moves from administration to CVL.

In the past, if the Company had little or no assets and the fees available to the IP were restricted there was always a risk that the IP involved would undertake only the statutory minimum investigation so as to save on costs.  This may have resulted in actions of potentially unfit directors not being identified and reported.

The key benefit for the Insolvency Service will be an improved capture of information across all companies that become formally insolvent, allowing greater consistency of data and helping decision making for investigation and enforcement activities from the Service.

As with most new projects the development of the new system is expected to continue as the system goes into mainstream use.