News and Insights
17 March 2023
New guidance has been released by HM Attorney General (the AG) describing what actions (or omissions) could lead to a person being disqualified from acting in the position of company director. The advice clarifies that even innocent or careless actions, such as poor record keeping, failing to keep board resolutions and failing to take professional advice when necessary, could lead to a disqualification order from the Royal Court.
What advice has been released?
HM Attorney General (the AG) released guidance on 3 March 2023 concerning when the AG would apply under Article 78 of the Companies (Jersey) Law 1991 (the Companies Law) for a person to be disqualified from acting in the position of director of a Jersey company.
The advice applies to every director, including those acting for charitable and other voluntary organisations. It also applies to 'shadow directors', being those persons occupying the position of director even if not called by that name.
The guidance has been drafted not to dissuade individuals from becoming directors but to remind them that they must comply with their duties both to the company and to any creditors.
It is important for 'Jersey PLC' and its international reputation that the AG is seen to be actively addressing and combatting director conduct that is considered poor quality, negligent, incompetent or dishonest.
When may a person be disqualified?
A person may be disqualified as a company director if their conduct makes them unfit to be concerned in the company's management.
The AG has advised that the following list of non-exhaustive factors / issues could trigger the AG to make an application to the Royal Court for a disqualification order:
- Criminal convictions arising out of the person's managerial responsibilities or activities, such as offences of dishonesty.
- Poor statutory records being kept by the company.
- Poor records of board meetings being kept by the company.
- Failing to take professional advice when reasonably necessary.
- Failing to understand or provide for contingent liabilities.
- Delegating duties with inadequate scrutiny or control or to persons who are incompetent.
- Failing to cooperate with any liquidator or the Viscount where the company is subject to a winding up.
- Failing to account for company property.
- Negligent completion of a solvency statement.
- The company trades on customer pre-payments, and the director has knowledge the company is doing so.
- The director is responsible for a serious breach of the Codes of Practice issued by the JFSC.
- Failing to declare or act appropriately regarding conflicts of interest.
The most common way the AG will become aware of any disqualification triggers would be through the JFSC, the AG or a liquidator of a winding up conducting an investigation relating to the company pursuant to Article 184 of the Companies Law.
The AG may also become aware of the factors described above through an investigation by the Jersey police into criminal matters concerning the company or director.
What aggravating factors would the AG consider when deciding to make an Article 78 application?
The AG would take a particularly dim view of any actions or activities: (a) undertaken by a person who is professionally qualified or who is experienced; (b) where there is a resulting loss to investors or creditors; (c) where an offence is repeated; or (d) where there are wider public interest considerations.
Will the AG always opt to apply for a disqualification order where there is a breach of the guidance?
Where the AG considers an issue or factor to be minor, the AG is not required to bring an application for disqualification under Article 78 but rather may resolve the matter through an informal written warning.