Guidance Notes for the Completion of Statutory Reports and Returns

These notes are important and should be read before completion of any report or return under section 7 of the Act.

3. Completing the report or return

Your conduct report must be the D1 report or D2 return contained in the schedule to the reporting rules, or in a form which is substantially similar to the relevant form in the schedule and with any necessary variations.

• Send a D1 report if you have unfit conduct to report, and enclose supporting papers.

• Send a D2 return, if you do not have unfit conduct to report. There is no need to add enclosures.

The flowchart at Appendix 4 may help you decide the appropriate form of report. All reports or returns on companies registered in Scotland must be sent to Disqualification Unit (Edinburgh). The statutory forms to use in such cases are D1(SCOT) and D2(SCOT), as appropriate.

As soon as you think there is no unfit conduct to report, please send a D2 return. Every office-holder must send a return or report (but see page 17 in respect of joint appointments).

insolvency practitioners Compliance Unit ("IPCU") in Birmingham monitors the submission of reports and returns and, if necessary, sends reminders to Practitioners. Practitioners will be referred to their recognised professional bodies if they fail to send returns on time; to respond to correspondence; or to contact IPCU or the Disqualification Unit. Practitioners authorised by the Secretary of State who do not comply, will face appropriate action. The Unit may refer a case of non-compliance to be considered for prosecution under Rule 4(7) of the reporting rules.

3.1 The 'D2' interim return

If you have not reported under section 7(3) in relation to all the persons mentioned in rule 4(2) of the reporting rules and you cannot yet send a final return - for example, because you are still examining the company's affairs - then you must:

• send an interim return (also in form D2) within 6 months of the relevant date; and

• provide an estimate of when a report or final return can be expected.

If you can, please send a report or final return within nine months of the relevant date.  If you need more time or are having other difficulties, please contact the Central Vetting Section for advice and to agree the best way forward.

The information in your return is input to a computer database and kept for future reference.

3.2 Completing the 'D1' conduct report

The following comments aim to help you complete the D1 conduct report. You should send a D1 as soon as you think that:

• a person is or has been a director of a company which has at any time become insolvent (whether while he was a director or subsequently); and

• his conduct as a director of that company (either taken alone or taken together with his conduct as a director of any other company or companies) makes him unfit  to be concerned in the management of a company.

General considerations

You should ask yourself three questions:

• What allegations of unfit conduct am I making?

• What evidence is available to support them?

• What were the roles of the directors and their various levels of responsibility for the unfit conduct?
  

At the initial vetting stage the Unit need not see all the evidence. However, if you do not send the evidence with the report, you should summarise its main points and say where it is.

Directors' details (section 3 of the D1)

Here you should list all the directors, including shadow and de facto directors of the company, and any other person who appears to you to have been a director or shadow director in the three years before the relevant date in rule 4(4) of the reporting rules. You should also state which of them are responsible for the matters of unfit conduct. Please state each director's full name (including aliases), address and date of birth, and provide the other information required by section 3 of the D1.

If you think that a director is no longer at the address provided, please say so and provide all the information available which will help in tracing the director. The fact that a director is living abroad does not preclude the Secretary of State from seeking disqualification and should not stop you filing a report. If a director cannot be traced, this may prevent proceedings being brought, but we often trace directors by using agents.

Shadow or de facto directors

In section 3 of the D1, please clearly list any people who acted as directors without being formally appointed. The term "de facto" director includes any person occupying the position of director, by whatever name called, if that person has not been formally appointed.

In several cases the Courts have shown that proceedings against such people will only succeed if a very good standard of evidence is produced to show that they acted as directors. It will therefore be useful if you can supply comprehensive evidence of their role. It will probably need to be documentary, in the form of information from third parties such as creditors, auditors, banks, employees, other directors. The Court will need to be convinced that the "de facto" director acted essentially at the same level as the duly appointed directors.

In relation to a company, "shadow director" means "a person in accordance with whose directions or instructions the directors of the company are accustomed to act". However, a person is not treated as a shadow director merely because the directors act on advice he gives in a professional capacity (section 22(5) CDDA). The fact that one member of a board acts on the instructions of a third party does not Necessarily mean that the third party is a shadow Director; the capacity to influence the whole board (or at least a majority) is the key issue.

The inactive director

In recent years the Courts have addressed the issue of those directors who are not engaged full-time in the company's day-to-day business. In one case, the Court ruled that non-executive directors can be found unfit if they have failed properly to inform themselves of what is happening to a company and thereby failed to take appropriate action, particularly in financial matters. In another case, the Court held that all directors have statutory and fiduciary duties. In the absence of special circumstances, and even though they may not have received payment, directors may make themselves unfit "by virtue of sheer inactivity over the period of their respective directorships".

Connected companies (section 4 of the D1)

Connected companies are those with which the director whose conduct you are considering had an involvement which is relevant in your consideration of the conduct. These include companies in which the company's directors or shareholders have also held directorships or shares. The information the Unit needs is the name of each connected company, the relationship to the company reported on (subsidiary, parent, common directors, common shareholders) and in broad terms the scale and nature of inter-company transactions. If the connected company is in liquidation, administration or in receivership, please provide any known information.

Unfit conduct (section 5 of the D1)

Here, please give details of the conduct of each director who you regard as unfit, together with a summary of the supporting evidence. If you are attaching these details in a separate report, please at least list here the conduct which causes you to consider that the director is unfit. Chapter 4 gives detailed consideration of the more usual types of unfit conduct and how you should report them.

Statement of Affairs, Accounts and Report to Creditors (section 6 of the D1)

Please always attach to the D1 a copy of any Statement of Affairs which has been submitted. If it has not been submitted, you should include all details of the known assets and liabilities, explain why the Statement of Affairs is not available, and say how you have tried to obtain it.

With the D1, you should also send:

• a copy of the last two sets of audited or statutory accounts;

• copies of any management or draft accounts for periods thereafter;

• a copy of your report to creditors; and

• a copy of any questionnaires which have been completed by the directors at your request.
  

Other proceedings (section 7 of the D1)

If you have begun asset recovery proceedings, you should enclose copies of the Statement of Claim and any defence. Please also tell us of the present state of the action. If you have identified a cause of action but have not begun proceedings or made a decision to abandon them, you should give the reasons. Please provide details of any settlements entered into and copies of any Court orders.

If you have begun civil recovery proceedings or are considering them, this is not an adequate reason to delay sending the D1; disqualification proceedings are separate from any recovery actions arising out of the insolvency.

It is particularly important to give details of civil recovery proceedings if your application is for fraudulent or wrongful trading. This is because section 10 of the CDDA allows a disqualification order to be made after a finding of fraudulent or wrongful trading by the Court. If you are considering proceedings for fraudulent or wrongful trading, please give brief details of the evidence that would support such an application.

If you are aware that the police or any other prosecuting authority are taking criminal proceedings in respect of the company, or are investigating its affairs, you should give all known details. Where possible, please include a contact name, address and telephone number of the person dealing with the investigation so that the Unit can ascertain the up-to-date position. Section 2 of the CDDA allows a disqualification order to be made following a conviction for an indictable offence in connection with a company.

If criminal offences are suspected, please remember that sending a D1 does not relieve a voluntary liquidator from the responsibility to send a report to the Director of Public Prosecutions (or, in Scotland, the Lord Advocate) under section 218(4) of the Insolvency Act 1986. If such a report has been sent, or is likely to be, please note this on the D1.

You should also report any other proceedings being taken against the director(s), for example by HM Customs and Excise or the Inland Revenue.

[ CONTENTS ] [ PART 1 ] [ PART 2 ] [PART 3] [ PART 4 ] [ PART 5 ] [ PART 6 ] [ APPENDICES ]