The number of directors disqualified by UK courts rose from 399 in 1993-1994 to 1,267 in 1997-1998.

The report emerged from an inquiry into the Insolvency Service's effectiveness prompted by claims the organisation was failing to protect businesses and the public against incompetent or dishonest directors.

In 1994, the service was given a series of recommendations on how it could improve by the Committee of Public Accounts.

Watchdog improves

The new report, which is to be presented to the Government, found that the service had improved in ensuring unfit company directors were banned under the Company Directors Disqualification Act 1986.

It said the service had boosted the quality and speed of reporting on directors who were believed to be unfit.

Each failed company with an unfit director costs creditors an average of £150,000

It had also increased its resources devoted to disqualifications from £9m in 1993-1994 to £22m in 1997-1998 and allocated more staff to deal with cases.

The report found that each failed company with an unfit director cost creditors an average of £150,000, and that by disqualifying them creditors could save about £11m a year.

It called on the service to now concentrate on cutting the time it takes to have an unfit director banned from running a business.

While it currently takes an average of three years for about 61% of unfit directors to be banned by the courts, the period is four months longer than in 1992-1993.

The service was also urged to make sure unfit directors obeyed court orders and did not start managing other companies by using someone else to front a business.

"It is important that disqualifications are properly enforced," it said.

"If they are not, the financial benefits and deterrent effects of disqualification will be undermined."

Complaints hotline

Other recommendations included improving a hotline for people to report unfit directors who breached court orders and increasing awareness among company directors about disqualification laws.

The Insolvency Service is an executive agency of the Trade and Industry Department and is the main body responsible for administrating laws on company director disqualification.

Most directors banned from running companies are disqualified after their business is declared insolvent.

About 4,300 individuals are currently disqualified from acting as a director or being involved in managing a limited liability company.

More than 15,000 companies were placed in formal insolvency proceedings between 1997 and 1998.