1.1 EL COMPONENTE MOTIVACIONAL DE VALOR.

3.41 As a part of the original hypothesis, the author considered it important to understand the potential factors that may influence the period of disqualification. This is a matter of the gravest importance. The length must be balanced between the protection of the public and the imposition on an individual’s freedom to manage a company, if it is to be effective. A period of disqualification that is disproportionate to the aims that are sought undermines the success of the regime. A period too harsh is indicative of an intention to punish, rather than to protect.388 Similarly, a period of

disqualification that is too short is unlikely to have sufficient impact upon the individual concerned; but cause significant wastage of public expenditure in the investigation process. However, the exact mechanics used by the IS for determining the length are unknown. The mean average period of disqualification in the survey was 5.50 years – just outside of the lowest Sevenoaks bracket. This is partially skewed by the number of MTIC cases that always result in longer periods of disqualification. The median, it is submitted, is the more appropriate measure at 5.0 years. This figure is rather low, considering the minimum period is two years under section 6. In line with the Sevenoaks brackets, this would suggest that most misconduct is only considered to be ‘minor’. In fact, there is anecdotal evidence that public perception is that disqualification for a period within this bracket is equivalent to no more than a ‘slap on the wrist’.389 It goes

without saying that low periods of disqualification are therefore damaging in terms of the trust and confidence in the enforcement regime, and as a deterrent to future

388 _2.6.

389 _{See for example John Willcock, ‘4,000 Rogue Directors on Loose in UK Companies’ The}

misconduct. Moreover, the statistics cause reason to doubt the effectiveness of disqualification should it, on the whole, fail to protect the public for an appropriate period of time. With the assistance of the survey data, the following section will consider the impact of the insolvent company’s deficit on the period of disqualification. Company Deficit

3.42 It was hypothesised that the magnitude of the deficit of the company at the time of insolvency would be a significant factor in determining the period of disqualification. However, analysis of the survey data reveals – somewhat surprisingly so – that this is not the case. The deficit was obtained for each company by reading the misconduct report and recording the appropriate figure. By the very nature of the reports, particularly in cases where there was a lack of accounting records, often this figure was an approximation or a ‘minimum potential deficit’ and so should be looked upon conservatively. For present purposes, however, the information recorded permits the drawing of some general conclusions. Across the survey, the mean average deficit recorded was £475,149.80 and the median average £164,456.00. The large disparity between the two figures was largely due to the various MTIC fraud cases on one end of the spectrum, and trivial accounting matters on the other. The highest recorded deficit was £9,106,532.00 and the lowest recorded (as in 10 cases in total) was nil.

3.43 A correlation co-efficient calculation was carried out in SPSS, across all of the records within the survey, so as to determine the association (if any) between company deficit and the period of disqualification. The calculation identified a very weak, but not entirely non-existent, positive correlation between the two variables ( = 0.288). This

suggests that deficit is of limited relevance in determining the period. However, it is possible that one ‘advantage’ of a large deficit is that it that it is likely to trigger alarm bells for IPs; causing them to conduct more detailed inquiries. This may in itself lead to disqualification, whereas otherwise the director might have slipped through the proverbial net. As was discussed with accounting misconduct, it may be that a particularly large company deficit is a ‘gateway’ into exploring the entire extent of a director’s involvement and culpability, though the statistics are not conclusive in this regard.

3.44 The fact that there is no obvious correlation between deficit and disqualification period, it is argued, is rather staggering; though it is recognised that the two factors are not necessarily causative. However, the perception conveyed is that directors may run up any number of debts, to any number of creditors (even if well into the millions), without particular consequence in terms of the period of their eventual disqualification. Instead, it is how they do it that is at issue. The fixing of an appropriate period is one of the key factors that the author suggests is necessary to a successful disqualification regime. It is therefore odd that company deficit does not appear to be a factor. By contrast, in respect of compensation orders and undertakings, it is a requirement that the amount of loss caused is considered as a factor in determining the level of compensation.391 This, of course, makes perfect sense. However, there is some

possibility that, in the future, this element will also make it into determining the period of undertakings more generally. As stated previously, the ‘new’ Schedule 1 now

390 _{By way of comparison, in his survey Williams discovered a practically non-existent correlation} ( = 0.0351); Williams, Disqualification Undertakings: Law, Policy and Practice (n 18) para 5.11. 391 _{CDDA 1986, s 15B(3)(a).}

requires in all cases that consideration be given to the ‘nature and extent of any loss or harm caused’. Loss can of course include financial loss. This may therefore pave the way for a new process of evaluating periods of disqualification, with harm to creditors playing a more central role. It is argued that tying culpability directly to the extent of the damage caused must represent a better approach.