Sentencing guidelines - acting as a director whilst disqualified

The Sentencing Council recently announced new guidelines for sentencing breaches of s.13 of the Company Directors Disqualification Act 1986 (CDDA 1986), commonly known as ‘acting as a director whilst disqualified’. The guidelines come into force 1 October 2018. Those who are subject to a director’s disqualification order (‘DDO’) may have some questions about the guidelines.

How is a director’s disqualification order breached?

 A DDO states a specified period of time that a person may not, without leave of the court, be:

• a director, liquidator, or administrator of a company
• a receiver or manager of a company’s property
• in any way, directly or indirectly, concerned or take part in the promotion, formation or management of a company.

To do so will be a breach of the Order which is a criminal offence (section 13).

What are the sentences for breaching a disqualification order?

Acting in contravention of a DDO is triable either in the Magistrates’ Court or the Crown Court and is punishable by up to two years’ in prison.

How is the sentence determined?

The Guidelines are the first of their kind for this offence. Previously judges would look to past decisions of the Court of Appeal and sentence each case according to the facts. Now, judges have a framework of considerations to make when deciding on sentence. The sentencing process is a formulaic one. The trial judge will first determine three main factors:

1.Culpability (the defendant’s conduct/role)
2.Harm (caused by the offence)
3.Aggravating and mitigating factors

How is culpability determined?  

There are two levels of culpability, from high to low. A defendant will fall into category A (the highest category) where the breach of the order involves deceit/dishonesty in relation to the actual role within the company and/or the breach involves deliberate concealment of disqualified status. 

In all other cases a defendant will fall into category B, for example, where there has been some sort of misunderstanding as to the nature of the disqualification. An example given by the Sentencing Council is that of a ‘person failing to appreciate that the disqualification order was not restricted to commercial activity and extended to the management of a charity.’

Most other cases are likely to fall into category A. This is important because the lowest starting point for any person assessed as category A is 12 week’s custody.  

How is harm determined?

The Guidelines state that there are three categories of harm. A defendant will fall into category 1 (the highest category) where the breach results in significant risk of, or actual, serious financial loss, OR results in significant risk of, or actual, serious non-financial harm.

Importantly, there is no requirement to have caused actual harm, only the requirement that there is a significant risk of actual serious harm.

Second, there is no need for the harm to be financial; non-financial harm will suffice. The Sentencing Council’s examples of non-financial harm include: harm to the lives of a company’s employees, pensioners and customers (as seen with British Home Stores) or reputational damage and the loss of services to end users (as in Kid’s Company).

How do culpability and harm determine the sentencing range?

It is important that harm and culpability are assessed on the basis of the fullest of information from the defendant, not just from the prosecution. This is what the judge or magistrate will use to determine the sentencing range and the starting point, that is to say the range of sentences available to the Judge, and the point at which to start their considerations. 

For example, someone assessed as having higher culpability and causing mid-range harm (level 2) will be looking at a sentencing range of between 12 weeks’ to 36 weeks’ custody, with a starting point of 26 weeks’ custody. The judge will then look to the aggravating and mitigating factors of the case and make a decision on whether to move up or down from the 26 weeks’ starting point.

What are the aggravating and mitigating factors?

The Guidelines list a number of factors (which are not exhaustive). Example of aggravating factors include:

• Breach committed shortly after order made
• Breach continued after warnings received
• Breach is continued over a sustained period of time
• Breach involves acting as a director in multiple companies
• Breach motivated by personal gain

Mitigating factors include:

• Breach not motivated by personal gain
• Breach committed after a long period of compliance
• Genuine misunderstanding of terms of disqualification
• Evidence of voluntary reparation/compensation made to those suffering loss
• Breach activity minimal or committed for short duration
• Age and/or lack of maturity where it affects the responsibility of the offender
• Mental disorder or learning disability where linked to the commission of the offence
• Sole or primary carer for dependent relatives

Aggravating factors are likely to be invoked in a wide range of situations. For example, it would be difficult to argue that the individual was not ‘motivated by personal gain’ in situations where they received remuneration. Further, given that DDOs prevent the individual from ‘promoting, forming or managing a company’, it would be easy to argue that any breach ‘continued over a sustained period of time’.

What do the guidelines show?

The Guidelines are meant to describe sentencing practice rather than dictate it. What these guidelines show is that sentencing for this offence is heavily weighted in favour of custodial sentences.

If you have any questions about the scope of DDOs, how to avoid breaching a DDO or what to do if you think you may have breached an order, contact Nicola Finnerty or a member of the criminal team.

This blog was written by Nicola Finnerty and co-authored by Sam Smart in the criminal team.