Carecraft proceedings

Since the Insolvency Act 2000, Directors have not had to await the issue of legal proceedings (and the associated legal costs liability) before they can be disqualified.

The evolution of the Disqualification Undertaking under this legislation has meant that Directors can accept responsibility for their misconduct and enter into a Disqualification Undertaking prohibiting them from acting as a Director or in the promotion, formation or management of a limited company for a specified period, being between 2 - 15 years.

The advantage of a Disqualification Undertaking is that it avoids the legal costs of Disqualification Proceedings, which for many Directors of a small or medium-sized company is likely to be exorbitant.

Pre-2000 Arrangements

Prior to the above changes, a Disqualification Undertaking was not available and the Secretary of State was required to issue a Disqualification Claim and have the Court determine the application as with any other application.

Directors would often not be sufficiently skilled to deal with such proceedings and not have the funds or any access to solicitors (other than through Legal Aid, where it was available).

The added consequence of such proceedings was that, once the matter had been dealt with routinely as part of the Court process, the Director would become liable for the legal costs of the Disqualification Claim.

Re Carecraft Construction Co Ltd [1994]

This historic position was altered slightly following this case being heard, in circumstances where there was no dispute as to many of the main facts but the Court was invited to accept the Director’s undertaking or otherwise make a decision on the basis of information that had been agreed between the parties..

The Secretary of State and the defendant Directors were unable to displace the Court’s role in hearing the evidence (as can now occur with a Disqualification Undertaking) but the Court did agree to a submission by the parties of an agreed statement of facts together with an invitation for the Court to make a determination on what Order should be made.

This was an innovative mechanism to avoid the unnecessary and often lengthy delays caused by the litigation process and enabled the Court to provide a solution where most of the facts were agreed and the Court was just required to interpret the facts.

At the time the Court was unable to take a simple undertaking from the Director (i.e. not to act in the management of a company) as this would undermine other remedies available to creditors and the Crown under the Company Directors Disqualification Act 1986.

Following the introduction of Disqualification Undertakings by virtue of the Insolvency Act 2000, the Court’s role in Carecraft proceedings was less required, as the previous inadequacy of a Director’s undertaking was now supported throughout the legislation (as amended)

Carecraft Proceedings today

The use of Carecraft is now distinctly less common but is provided for in the Practice Direction which governs Director Disqualification Proceedings.

The parties may today agree a written statement which may be put before the Court, to be heard in private, together with a suggested Disqualification period (or range) upon which the Court may determine at a private hearing whether a Disqualification Order should be made and for what period.

This is particularly useful where a Director is willing to offer a Disqualification Undertaking but does not agree with the Disqualification Period sought.  However, such an approach is rarely agreed by the Secretary of State, as the statement would be difficult to agree and, in proving the Disqualification Claim, a paper-based approach is likely less preferable.

At Francis Wilks & Jones we have considerable experience of Director Disqualification Proceedings and dealing with litigated Director Disqualification Proceedings (including the above issues) through to trial.

Please call any member of our Director Services Team for your free consultation now on 0207 841 0390. Alternatively email us with your query at info@franciswilksandjones.co.uk and we will call you back at a time convenient for you.