MÚLTIPLES METAS: PERFILES MOTIVACIONALES DE LOS ESTUDIANTES

4.10 Keay has argued that fraudulent and wrongful trading serve both a public and

private function.456 As alluded to in Chapter 1, in some instances the dividing between

strictly ‘public’ or ‘private’ enforcement mechanisms is blurred.457 This is particularly

true in the case of wrongful trading given what has just been stated about its primary objective. The private functions relate to their ability to compensate creditors. The public functions lay in the improvement of standards of management generally;

providing a deterrence from wrongdoing; and the interaction with disqualification.458 It

is this author’s perspective, to the contrary, that although they may be said to serve

certain public functions in theory, the practice is somewhat different.

Deterrence and Raising Standards

4.11 Deterrence has already been dealt with in significant detail previously in this

thesis.459 The author does not intend to repeat those points, though it should be noted

that many of those made – particularly in respect of awareness – apply equally in this context. The concern of this author is accurately summarised by Ball:

455_{Re Produce Marketing Consortium Ltd (1989) 5 BCC 569.}

456 _{Andrew Keay, Company Directors’ Responsibilities to Creditors (Routledge-Cavendish 2007)}

67

457 _1.10.

458 _{Keay, Company Directors’ Responsibilities to Creditors (n 456) 67-68.} 459 _2.11.

the punishment prescribed…A law can have no deterrent influence upon a potential

criminal if he is unaware of its existence’.460

Thus, a person unaware of the existence of proceedings that may be taken against them is wholly unlikely to be deterred from such a course of conduct. As discussed previously, the state takes limited steps to bring matters such improper trading, and the

associated penalties, to the attention of directors.461 Coupled with the exceedingly low

volume of cases, a matter dealt with below, it seems unlikely that awareness is high. The author makes the point that if awareness of by far the most widely used mechanism – disqualification – is low, then the mechanisms discussed in this chapter immensely more so. Consequently, it is suggested that any deterrent effect is commensurately low. This is especially troubling in cases of fraud, as the consequences of such wrongdoing

can be especially damaging to creditors and wider society.462 A successful regime,

therefore, should embody a strong deterrence agenda, and it is somewhat obvious to this author a lack of awareness has dogged current efforts in this regard. But, in turn, this has a knock-on effect in terms of improving standards. Again, this was dealt with substantively in relation to disqualification. In short, it cannot be said that standards of directorial behaviour will be improved if those subject to the regulation are not aware of what conduct it seeks to control. The state cannot expect this knowledge to be obtained by directors through osmosis; proactive steps are needed. In the case of wrongful trading this omission is especially noteworthy given its primary aim of raising

460 _{John Ball, ‘The deterrence concept in criminology and law’(1955) 46(3) J Crim LC & PS 346,}

347-348 as quoted in Kirk Williams, ‘Public knowledge of statutory penalties: the extent and basis of accurate perception’ (1980) 23(1) The Pacific Sociological Review 105, 109 (emphasis added).

461 _2.17-2.20.

462 _{See National Fraud Authority, ‘Annual Fraud Indicator 2013’ (June 2013)}

<http://bit.ly/1zU4oQI> accessed 01 January 2016; R3, ‘The Fraud Landscape: Insolvency and the fight against fraud’ (January 2015) <http://bit.ly/17dWJ7L> accessed 01 January 2016.

standards thereby obviating the need for its use. Thus, the author is forced to conclude that wrongful trading fails to achieve its primary objective as a result of the state’s almost total failure in this regard. The obvious solution to this, as will be dealt with in the penultimate chapter, is to raise awareness through education and training.

Directors’ Disqualification

4.12 The even stronger point made here however, manifested on official data, relates to directors’ disqualification. Another form of disqualification not yet discussed arises from CDDA 1986, section 10. It provides that where the court makes a declaration that a person is liable to make a contribution to the company’s assets for wrongful or fraudulent trading, it may also make a disqualification order for a period not exceeding 15 years. It is contended that Keay’s comment that disqualification provides a public enforcement element within the context of improper trading is confined merely to academic theory. It benefits from limited practical observation. Whilst it is the opinion

of this author that it should occupy a far more prominent position in the disqualification

arena, the evidence examined below is conclusive of the fact that it simply does not.

4.13 A spate of FOIA 2000 requests by this author to CH and IS conclusively illustrates that even for those few individuals found liable for improper trading, the numbers disqualified are infinitesimally small. Table 12 below identifies the number of disqualifications made under CDDA 1986, section 10, since its inception:

section 10 CDDA 1986: 1986-2015

Year

*Indicates grouped

Number of Disqualification Orders

1986-1990* 0 1990-1991 10 1991-1992 1 1992-1993 9 1993-1994 2 1994-1995 1 1995-1996 1 1996-1998* 0 1998-1999 2 1999-2000 1 2000-2015* 0

4.14 According to the official data, the total number of disqualifications made under section 10 is 27, all occurring within the years 1990-2000. Since that time there have been no further disqualifications made under that section to date. What is particularly interesting is that the surge of section 10 disqualifications in the 1990’s dissipated around the same time as the implementation of the IA 2000, which introduced disqualification undertakings. Although not necessarily causative, it seems likely that since this time, what with the vast majority of disqualifications occurring via

undertakings, section 10 orders have been all but forgotten. However, on this point it

may be deduced from statistics provided by the IS that even if this is the case, and it is their practice to pursue such individuals for undertakings, the numbers are equally

small. The official statistics for 2016-17 suggest, for example, that there was only one

allegation of ‘insolvent trading’ out of a total of 1272.463 No defined category in the

statistics relates to fraudulent trading and therefore it is deduced that any they would fall into the ‘Other’ category. For 2016-17 there were zero such allegations that fell into that category.464

4.15 Given that there is not even a need for an application by the officeholder for disqualifications to be made under section 10, as the court may make an order of its own volition, it would appear that its lacklustre usage falls squarely in the hands of the judiciary. Particularly in the case of fraud it is argued here that, where proven, disqualifications should in fact routinely be ordered. In this author’s mind, there can be no greater display of misconduct than fraud so as to warrant being barred from

directorial practice. It seems at odds with the objectives of disqualification to swiftly

and forcefully pursue those that commit relatively minor wrongdoing, for instance a

failure to pay modest Crown debts.465 Yet, when the court is physically faced with an

individual proven to have committed acts so grievous to the extent of being labelled as ‘dishonest’ it appears that such a person will in effect never be barred. Indeed, this is

contrary to the very idea of a deterrence. One possible solution, of course, is to

implement some mechanism of automatic disqualification, as in Australia.466 This has

been proposed by various commentators, including the Cork Committee,467 though to

more general effect, and the concept has largely been shunned by Parliament. What is suggested here, however, is the potential for the legislation to provide – namely in cases of fraudulent trading – for a presumption that the individual found liable should be

464 _ibid. 465 _3.20.

466 _{Corporations Act 2001, s 206B (Australia). See generally Stephen Griffin, ‘Accelerating}

disqualification under section 10 of the Company directors disqualification act 1986’ 2002 2(Mar) IL&P 32.

disqualified, except in cases where information prevailing at the time would prevent such an order. The more heinous the fraudulent trading, the more difficult it should be to rebut the presumption that there should be an order for disqualification.

4.16 The author has therefore demonstrated that disqualification in all of its history has hardly ever been used as a mechanism of enforcement subsequent to a finding that an individual has engaged in improper trading. It is for this reason that it is concluded that the ‘public’ utility of either mechanism is muted. In terms of the effectiveness of the regime, this is from one angle highly damaging, and from another simply a missed opportunity.