HC Deb 19 October 1976 vol 917 cc1381-3

5.15 a.m.

Mr. Loveridge

I beg to move Amendment No. 64, in page 28, line 41, after "persistently", insert "and unreasonably".

This simple amendment relates to the power of the High Court to make a disqualification order for persistent default by directors. As the clause stands, an order might prohibit from being a director a person who had been in persistent default. That seems proper, but the High Court should have a discretion to check as to the reasonableness of the default. If it was reasonable that there should be persistent default, the High Court should be allowed a discretion in the matter, and Parliament should not force the High Court to make a conviction against its better judgment.

Second, I was not clear in Committee, and I am not clear now, what being persistently in default might imply. Does it mean that one series of documental failures on one occasion, so to speak, could be counted as persistent, or would there have to be separate series of defaults to make the reference to persistence apply, and how many such series would be required?

Mr. Arthur Davidson

I shall have to go in some detail into the effect of Clause 25 in order to answer the very reasonable points raised by the hon. Member for Upminster (Mr. Loveridge). Basically, the clause provides that the Secretary of State may apply to the court for a disqualification order to be made in respect of a person who has been persistently in default under one or other of the various provisions of the Companies Act and the Bill relating to the delivery of returns, notices and other documents required to be delivered to the registrar. If the court is satisfied that the person has been persistently in default, it may make an order disqualifying that person from being a director or being concerned in any way in the management of a company for a period up to five years.

The clause provides that it shall be conclusive proof that a person has been persistently in default if over a period of five years he has been three or more times convicted or has had three or more default orders made against him in connection with the relevant defaults.

I assure the hon. Gentleman that the Secretary of State need not apply for a disqualification order to be made in every case where there appears to have been persistent default in complying with the provisions. He has a discretion as to whether to apply, and a reasonable Secretary of State would, of course, use that discretion sensibly.

Perhaps I should add that disqualification by the court is not automatic. The court has to be satisfied that there has been persistant default, and provision is made in the clause for the person against whom an order is sought to appear before the court and give evidence and to call witnesses on his behalf. He will thus have an opportunity of bringing evidence to show that, while he may have failed to comply with the relevant provisions, his failure was not unreasonable. He is therefore able to call evidence to the effect that his failure was not unreasonable, and the question of reasonableness is one which the courts are accustomed to determine. It is a matter which the court may be expected to take into account when deciding whether to make an order. In the case envisaged by the hon. Gentleman, I imagine that the court would wish to take the circumstances into account and might not make an order, although, of course, I cannot give a definitive judgment on that.

The effect of the amendment would be to require the Secretary of State to satisfy the court that the defaults were unreasonable, and, therefore, the burden of proof would be shifted to the Secretary of State. The Government do not consider that this is a burden he should be required to discharge. In many cases it would mean that issues decided by the court several years before the application for disqualification would be re-opened. That would cause difficulties. All the convictions of a persistent defaulter would have to be examined to decide whether they were reasonable, and a subsequent court could not be expected to do that.

Whilst unreasonableness is something which, under the present provisions, should be taken into account, it would not be practical to shift the burden of proving unreasonable conduct on to the Secretary of State or to reopen old issues.

Mr. David Mitchell

The Minister's last argument seemed to carry considerable weight but the point about three convictions within five years has not been covered. A man could be director of three companies and in respect of each, in one year out of five, be in default and therefore receive three convictions. That would be harsh.

Mr. Davidson

That would be a matter of considerable doubt. Some might think it harsh and others that such a man got all he deserved. I cannot adjudicate on that.

I am informed that three convictions on the same occasion may form the basis of an application.

Amendment negatived.

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