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Courts disqualify company directors risking pounds almost 300 times more often than those risking people

Research shows that courts disqualify company directors risking pounds almost 300 times more often than directors risking people’s health and safety.

Research published this week by the University of Warwick’s School of Law for the Health and Safety Executive, has found that for almost 20 years company directors were almost 300 times more likely to be disqualified by a court from acting as a director for insolvency or other financial reasons than they were for breaching health and safety rules.

The report, entitled "A survey of the use and effectiveness of the Company Directors Disqualification Act 1986 as a legal sanction against directors convicted of health and safety offences", by Professor Alan Neal and Professor Frank Wright of the Employment Law Research Unit of the University of Warwick, looked at the use made of powers contained in the Company Directors Disqualification Act 1986 in relation to disqualification orders related to health and safety failures in the management of companies.

In particular, the research considered the effectiveness of director disqualification under the 1986 Act as a legal sanction against directors convicted of health and safety offences. The University of Warwick researchers found that the provisions of the Act were very clear, and needed no further clarification or additional legislation in order to provide adequate sanctions for breaches of health and safety duties. What they did find, however, was a surprising failure to utilise those very clear sanctions.

From the records made available to them, the researchers were able to identify just ten directors who had been disqualified for health and safety reasons between the date when the 1986 Act took effect and the end point of their study in 2005. At less than one a year, this compares markedly to the overall total of some 1500+ company directors disqualified by the courts each year for insolvency or other financial reasons.

However the University of Warwick team were able to establish clear reasons as to why there had been so few disqualifications even though the 1986 made this available as a clear option.

In interviews conducted with HSE operations directors and their counterparts within local authorities, there emerged a surprisingly low level of awareness of the 1986 Act provisions. University of Warwick Professor Alan Neal said, "We found a marked absence of awareness even of what potential powers may be contained within the 1986 Act."

The University of Warwick team also concluded that much more could have been done to brief prosecution teams in relation to their ability to seek disqualifications and the desirability of actually doing so. In particular, they suggested that steps needed to be taken to develop and draw up guidelines for prosecutors in relation to appropriate circumstances in which an application for a disqualification order might be made to a court. There should also be a direction to all prosecutors (whether HSE, local authorities, or those acting as "agents" for the prosecuting authorities) in relevant cases of health and safety management shortcomings that any court which returns a guilty verdict in relation to a relevant indictable offence should be reminded of the powers available under the 1986 Act.

The Warwick Professors also recommended that arrangements should be put in place to supervise and monitor all health and safety prosecution files, with a view to identifying cases where it would be appropriate to make application for a disqualification order, and that, in any event, a formal return should be made by all prosecutors in respect of the outcomes of any cases handled by them before the courts.

The researchers concluded that, provided that these recommendations were introduced speedily, there was no reason to call for amendment of the existing powers contained in the 1986 Act. However, it was observed that, in the longer term, there would be a need for the Health and Safety Commission and the Health and Safety Executive to engage actively in the development of guidelines for boardroom and director conduct in relation to health and safety issues.

Since the research was completed, the Health and Safety Commission have given detailed consideration to the Warwick report and have responded quickly. The Commission have recognised the need for inspectors to seek greater use by the courts of director disqualification as a penalty, and new instructions on this matter have now been issued to inspectors. Last month, Professor Wright joined Lord McKenzie, Minister for Health and Safety, at the Institute of Directors in London, to launch the latest IOD/HSE Guidance on Leadership Actions for Directors and Board Members. Meanwhile, on 27 July 2007 the government’s Corporate Manslaughter and Corporate Homicide Act 2007 was passed, with provisions due to come into force on 6 April 2008.

Peter Dunn | alfa
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