Director Restriction: An Alternative to Disqualification for Corporate Insolvency

Provisions that allow for the disqualification of directors who are involved in multiple corporate failures have been adopted by legislatures in many jurisdictions. Imposing restrictions on directors is more easily justified where the director has broken the law. However, it is arguable that creditors need to be protected not only from fraudulent or dishonest directors but also from incompetent directors. It makes little difference to creditors whether their bills are not paid because of illegality or ineptitude. A way needs to be found to reconcile the need to protect future creditors, on the one hand, and the rights of persons to manage companies in the absence of wrongdoing, on the other. This article proposes the introduction of a new regulatory tool - "restricted directorships" - which has the potential to limit the harm that persons who are involved in multiple corporate failures can cause.