Keith Johnstone and Will Chalk

criteria which focus on a sponsor’s competence. Where a sponsor has been appointed, it must ‘guide the listed company . . . in understanding and meeting its responsibilities’ under the Part VI Rules. This will be evidenced primarily by the conduct of the listed companies to which the sponsor gives advice. Consequently, the sponsor regime can be seen to act as a factor conditioning corporate conduct in the same way as more traditional sanctions.

Misleading statements and practices

The regulatory sanctions discussed so far are civil offences. FSMA also vests in the FSA the ability to bring criminal prosecutions in relation to insider dealing and, more importantly from a pure corporate governance perspective, for knowingly or recklessly issuing misleading statements. These sanctions are necessary to check real excesses of behaviour and deter others from jeopardising the integrity of the market. The first convictions secured by the FSA using these powers have sent a clear signal to the market. The former Chief Executive and Finance Director of AIT Group plc28 were both imprisoned and forced to repay substantial sums to investors for recklessly misleading the market. They were also disqualified from acting as directors. This introduces the final sanction which plays a part in this segment of the Virtuous Circle.

Disqualification of directors

Directors may be disqualified under the Company Directors Disqualification Act 1986 (Disqualification Act). The aim of the Disqualification Act is to prevent those who are unfit to do so from taking part in the management of companies. Consequently, proceedings may be brought to disqualify directors on a number of grounds, including for conviction of an indictable offence in connection with the promotion, formation or management of a company, for persistent breaches of companies legislation or, on summary conviction, for breach of specified companies legislation including the obligation to file accounts. Disqualification may be pursuant to a Court-imposed Disqualification Order or, since April 2001, by way of an undertaking given by the director concerned so as to prevent the need for the matter to be dealt with through the Courts.

Depending on the grounds for the proceedings, disqualifications may be ordered for between two and fifteen years ‘in particularly serious cases’29 – as Lord Woolf said: ‘The period of disqualification must reflect the gravity of the offence. It must contain deterrent elements. This is what sentencing is all about.’30 In addition, breach of a Disqualification Order or undertaking is

28R v. Rigby, Bailey and Rowley [2005] EWCA Crim 3487.

29In Re Sevenoaks [1991] CH 164, periods of disqualification were divided into three brackets, a bottom bracket of two to five years where the case ‘is not, relatively speaking, very serious’, a middle bracket of six to ten years for ‘serious cases not meriting the top bracket’ and a top bracket of over ten years for ‘particularly serious cases’.

30Westmid Packing [1998] 2 All ER 124.

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