There are millions of directors throughout the UK, and most uphold their responsibilities effectively. However, if you fail to comply with your legal obligations, you may find yourself disqualified from acting as a director. This can have a serious and long-lasting impact on an individual, so it is essential that you understand the facts.
In this guide, our expert director disqualification lawyers, who have substantial experience in defending director disqualification claims, have set out precisely what director disqualification means, and the possible impact it may have on you, your reputation and ability to continue acting as a director in the future.
Director disqualifications serve as a stark reminder of the importance of accountability and compliance in corporate governance.
The latest statistics published by the Insolvency Service highlight the following key trends from April 2023 to March 2024:
Have you already been struck off as a director and want to reduce your disqualification period? Or maybe you’re being pursued by Liquidators of your company. Whatever your situation, it will be familiar to our director disqualification lawyers.
With many years experience supporting a wide variety of complex cases, we know what it takes to deliver successful outcomes for our director clients. Always on your side, our director defence lawyers have a proven track record in:
If you or your company is caught engaging in anti-competitive, negligent, illegal, or fraudulent activity, you could face serious personal consequences. So, even if you have only received an initial letter or phone call from the Insolvency Service, you must contact us straight away.
Book your free consultation today by calling our specialist director disqualification lawyers today on 020 7467 3980. Alternatively, complete the enquiry form on this page to arrange your confidential callback.
Directors are legally responsible for running a company, and, under the Companies Act 2006, there are set statutory duties and responsibilities that all company directors must adhere to.
These responsibilities include (but are not limited to):
Anyone can report a company director’s conduct as being ‘unfit’, and reports are made for many reasons, including where someone suspects a director of committing fraud, selling faulty products or services, not paying a company’s debts/tax, or causing harm to suppliers or customers.
Once a report is made, The Insolvency Service, acting on behalf of the Secretary of State, will assess any information reported, and consider whether to carry out further investigations.
But what are the most common reasons for director disqualification?
Today, disqualification is most commonly sought against directors of insolvent companies. When a company is placed into insolvency proceedings (including compulsory liquidation, voluntary liquidation, or administration), a director’s conduct will be automatically investigated. In such situations, a director may be disqualified to prevent repeat behaviour.
It is possible to avoid director disqualification if the director’s conduct is found to be appropriate. Indeed, most directors of an insolvent company are not disqualified. The burden of proof rests upon the Secretary of State to establish if a director’s conduct is unfit and should result in disqualification.
Where a director is declared bankrupt, director disqualification is automatic. This means that the director is automatically disqualified from acting as a director of a limited company, or as a partner of a Limited Liability Partnership (as well as some other types of organisations).
This automatic director disqualification falls under the remit of the Company Director’s Disqualification Act 1986. Failure to adhere to these restrictions could result in criminal charges.
The most common reason for a director to be disqualified is because the matters relied upon amount to misconduct capable of constituting unfitness. However, misconduct does not have to be deliberate. In many cases, it occurs because the director is not competent or organised enough to meet their legal obligations.
Director disqualification is sought following deliberate wrongdoing such as intentionally not paying taxes, fraud, and criminal acts.
Below are the most common reasons as to why a director may be deemed to be unfit in their position.
However, this is not an exhaustive list. If a director disqualification claim is brought against you for unfit behaviour, there are various options including:
If you decide to defend yourself, the Court will weigh up all the facts and circumstances to determine whether your conduct has ‘fallen below the standards of probity and competence appropriate for persons fit to be directors‘.
When weighing up a case, the Court will also look at any mitigating factors (e.g. whether a downturn affected the company’s cash position rather than director negligence). If the Court does issue a disqualification order, you will usually have to pay the costs and expenses incurred by the Secretary of State (and any other parties involved).
A disqualification undertaking is where you voluntarily disqualify yourself. Many directors prefer to offer an undertaking as it allows them to put the matter behind them and move on. It also means that you are unlikely to have to meet any costs incurred by the Secretary of State.
However, once accepted by the Secretary of State, a disqualification undertaking has the same legal standing as a court order. As such, professional legal advice is strongly recommended before offering an undertaking.
The Company Directors Disqualification Act 1986 (CDDA 1986) deals specifically with director disqualification. Its primary purpose is to maintain the integrity of the business environment. To support this objective, the Act sets out the procedures for company directors to be disqualified in some instances of misconduct.
The CDDA 1986 Act also sets out the standards for assessing unfitness. These standards are used to determine whether a person is fit to serve as a director.
More recently, the government introduced emergency legislation to ensure directors are not held personally liable for situations out of their control during the Coronavirus pandemic. These measures temporarily relaxed the rules on wrongful trading in a very unclear business environment.
Disqualification is a public matter, so being named as a disqualified director can be embarrassing and damaging to your reputation. If you are disqualified, your details will be published on the Companies House database of disqualified directors (and automatically removed when your disqualification ends).
Perhaps more importantly, if you are disqualified as a director, you are not permitted to act as the director of a company (without specific authorisation*), for the entire disqualification period (between 2 – 15 years). This means, while you can continue to work as an employee, even for the same company, you cannot:
You can operate as a sole trader or join a partnership (if it is not a limited liability partnership). However, if you hold a particular profession (e.g. accountant, solicitor, barrister, etc.), your professional body may prevent you from operating during the disqualification period. Also, you might not be able to hold a position of trust (e.g. as a trustee of a pension scheme, or a board member of a school or charity).
And there are other potential penalties to consider. For example:
Breaking the director disqualification rules is also a criminal offence which could lead to you becoming personally liable for debts incurred during the infringement period, and/or a prison sentence of up to two years.
* It is possible to apply to the Court for permission to act as a director or take part in the management of a company while disqualified. But this decision is very much at the Court’s discretion.
A director can be disqualified for up to 15 years. There are three tiers of director disqualification:
According to the Insolvency Service, the total number of director disqualifications increased in 2019/20 compared to the previous year. Year-on-year, the average period of disqualification also fell slightly. According to the stats:
The primary purpose of disqualifying an individual from acting as a director is to protect the public interest. For example, to stop a director with a history of abusing their position of trust from repeating behaviour that harms others.
In a nutshell, through the director disqualification process (and the potential criminal consequences of a breach) the legislation helps to protect the company, its shareholders, and other stakeholders (e.g. the public, creditors, customers, employees, etc.), from directors who may otherwise engage in repeat offences.
Jeremy Boyle
Head of Insolvency | Summit Law
Jeremy qualified as a solicitor in 1993 and is the firm’s founding partner. He specialises in commercial litigation, dispute resolution, fraud and insolvency law for clients in the UK, Gibraltar, Portugal, Spain, and South America. Jeremy is the supervisor of our Insolvency team.
