The directors' search is a tool with multiple applications. The two main uses of a directors' search are:
- To ascertain if a candidate is suitable for directorship or not.
- To find new directors
The disqualified directors' search facility helps in avoiding individuals legally barred from holding directorships in companies. An individual is ineligible to become a director if he is either bankrupt or disqualified under the Company Directors Disqualification Act 1986 for a specified period. While the online Individual Insolvency Register will reveal if a person is bankrupt or not, an online search of the Register of Disqualified Directors will show if a person is disqualified to become a company director or not.
Disqualified persons are prohibited from directly and indirectly forming and managing companies during the period of their disqualification, which could range between 2 and 15 years in England, Scotland and Wales. This information is available when conducting a directors' search. Such individuals are prohibited from becoming a liquidator or administrator of a company. Disqualified persons are also not allowed to become a receiver or manager of a company's property.
The disqualification of a person could arise from several reasons. A person is disqualified if he is found guilty by a court of wrongdoing in forming, promoting, managing, liquidating or striking off of a company. A person is also disqualified if he is found to have violated company laws on persistent basis.
Disqualification will arise if a person commits fraud in winding up a company. Unfit directors of insolvent companies are also ineligible for holding directorship in a company. The court will determine if a director of an insolvent company is unfit or not. Other reasons such as failure to deal with a county court administration order will also result in disqualification.
The online disqualified directors' search facility helps a company decide if a candidate for directorship is disqualified or not. The disqualified directors' search facility is provided free of cost by two agencies:
- Companies House
- The Insolvency Service.
It is unclear if the disqualified directors' search facility of both Companies House and the Insolvency Service is based on a single database or separate ones.
The disqualified directors' search facility, however, suffers from shortcomings. A note to users on the web site of Companies House warns: "Occasional inaccuracies occur which we correct as soon as they are drawn to our attention." The Insolvency Service, an executive agency of the Department of Trade and Industry, also warns of possible mistakes: "The information contained here is regularly updated. However occasional inaccuracies do occur." However, much should not be read into such problems. The disqualified directors' search facility of Companies House and the Insolvency Service offers an easy and reliable way of ascertaining if a person is eligible to become a company director.
Another major application of the directors' search facility is finding new independent directors. The public faith in corporations has been shaken by the recent spate of accounting scandals. The accounting problems of Enron and WorldCom are well documented. The USA, for instance, introduced a new legislation, Sarbanes-Oxley Act, for improving corporate governance.
Now corporations are inducting more independent directors on to their board for regaining public trust. This is getting progressively difficult as retired professionals and executives with relevant experience are shying away from directorships due to rising statutory obligations. An ongoing directors' search programme will help companies find new independent directors, who besides bolstering the credibility of the company, will add value to the business.
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