title: Director Liability In Insolvent Companies
title: An analysis of the effectiveness of private and public enforcement
      mechanisms with special reference to improper trading liability and
      disqualification.
titleType: Subtitle
Creators: name: Archer, Ben
Publisher: name: Lancaster University
Year: 2017

description: Encouraging entrepreneurship and trade by permitting free access to
      limited liability is a cornerstone emblem of UK enterprise policy.
      However, it comes at a price. The abuse of limited liability by dishonest,
      unscrupulous, incompetent, negligent, and occasionally deranged directors,
      who drive a company into insolvency – and the potential that it has to
      wreak financial havoc upon unsuspecting creditors – is all too well known.
      Yet, the state’s response to this abuse is not to limit access to limited
      liability. Instead, it has been, over a number of years, to create a
      wide-ranging regulatory regime in an effort to crack down on directorial
      misconduct.
      
      
      The mechanisms employed by the state for this purpose can crudely be split
      into two camps: ‘private’ and ‘public’ enforcement mechanisms. Those in
      the former category are powers of an insolvency officeholder under the
      Insolvency Act 1986, and have the primary effect of compensating creditors
      for misconduct that they have suffered at the hands of delinquent
      directors. This thesis turns its focus on wrongful and fraudulent trading.
      Public enforcement in this context means directors’ disqualification,
      pursuant to the Company Directors Disqualification Act 1986.
      
      
      The need for regulation, whether public and private, is shown to arise as
      a result of moral hazards created by this laissez-faire approach to
      accessing limited liability. The regulatory regime and limited liability
      are therefore inextricably linked. With that in mind, the thesis explores
      how effective these mechanisms are in preventing abuse. Effectiveness here
      is determined with reference to the original rationale and underpinning
      objectives of each respective mechanism. The thesis will however not
      confine itself to a doctrinal analysis of the mechanisms in pursuit of
      that aim. It will go further and introduce substantial empirical data, so
      as to understand their operation ‘on the ground’ insofar as is possible.
      It will be shown that each mechanism suffers its own significant
      difficulties which are inhibitive of their overall effectiveness.
      Ultimately the author will express the view that none of the mechanisms
      discussed appear to be working as intended. The thesis examines the recent
      reforms to this area following the Small Business, Enterprise and
      Employment Act 2015, but asserts that in reality they are likely to be of
      minimal significance.
      
      
      The final part of the thesis criticises the approach of the state in
      adopting an ex post facto system of regulation in the first place. It
      argues it to be misguided and inevitably resigned to at least partial
      failure because it does not deal with the underlying problem. The thesis
      therefore comes full circle in its conclusions by proposing for
      consideration a new, ex ante, alternative that deals with the issues at
      source: the curtailment of access to limited liability.