New Rules to Protect Creditors from Misconduct by Disqualified Directors in Northern Ireland

In an important move aimed at safeguarding creditors from the financial missteps of unscrupulous company directors, the Department for the Economy in Northern Ireland has introduced the Compensation Orders (Disqualified Directors) Proceeding Rules 2025. This legislation outlines the process for securing compensation from directors whose misconduct has led to financial losses for creditors.

A Closer Look at the New Rules:

Purpose and Background: The legislation empowers the Department to seek compensation orders from the High Court against disqualified directors. These directors can be held financially accountable for losses their misconduct has caused. Alternatively, directors can offer an undertaking with a similar compensatory effect. This initiative stems from amendments introduced by the Small Business, Enterprise and Employment Act 2015, aiming to bolster market and consumer protection against directors who fall short of expected conduct standards.

Key Procedures: The rules establish a clear framework for the Department and individuals under compensation undertakings to navigate the legal process. This includes applying for compensation orders or seeking variations or revocations of these undertakings, with specific procedures for the High Court to follow during hearings.

Consultation and Compliance: The Insolvency Rules Committee has been consulted and has endorsed these procedures. An equality impact assessment was deemed unnecessary as the rules comply with equality provisions under Section 75 of the Northern Ireland Act 1998. The rules are also aligned with all relevant legal standards, including those concerning EU withdrawal agreements, ensuring no discrimination based on religious or political grounds.

Financial and Regulatory Impact: Impressively, the implementation of these rules is expected to have minimal financial impact on public, private, and voluntary sectors, with no additional costs anticipated for the public purse. Consequently, no regulatory impact assessment was required.

Alignment with Other UK Legislation: These rules mirror similar legislation in place in England and Wales since 2016, ensuring consistency across the UK in handling director misconduct.

Future Developments: The Department plans to introduce further legislation to enable fees for any necessary creditor disbursements or legitimate expenses incurred during the process.

This legislative development marks a significant step in protecting creditors and maintaining corporate governance standards, offering a clear path to compensation for those affected by director misconduct in Northern Ireland.