What is director disqualification?
If you are a director of a limited company, you have a legal responsibility to be competent and honest. Businesses, consumers, and the Insolvency Service, rightly expect you to:
- Supply goods and services that have been paid for
- Keep proper company accounting records
- Send regular accounts and returns to Companies House
- Pay any tax your company owns
- Not use company funds or property for your personal benefit
- Not allow your company to continue trading if it can’t pay its debts
- Cooperate with any office holder
If you don’t act as a responsible director, you can be accused of ‘unfit conduct’. If a complaint is made against you, you and your company will be put under the microscope. You will also be scrutinised if your company enters into administration, liquidation or receivership.
Depending on the situation, the investigation might be carried out by the Insolvency Service, a company insolvency practitioner, Companies House, the Competition and Markets Authority, or the courts.
They will be looking for corporate offences such as:
- Fraudulent trading or other insolvency offence
- Insider trading or other market regulation offence
- Theft, fraud, bribery or other corruption-based offence
- Health and safety breach, environmental breach or other public protection offence
If you are convicted of a corporate offence, you could be disqualified (banned) from acting as a director.
“Oh no, I’ve been disqualified as a director!”
If you manage to get yourself disqualified, you can no longer operate with ‘limited liability’.
It also means your name will be listed as a disqualified director at Companies House and on the Insolvency Service register. You will not be able to form, market, manage, or liquidate any company that’s registered in the UK, or an overseas company that has connections with the UK. What’s more, you can’t appoint a friend or family member in your place.
Any disqualification order against you can last from two to 15 years.
It is a criminal offence to breach the disqualification order. If you do, you risk up to two years in prison, an unlimited fine, or both. What’s more, you would be personally liable for all debts and liabilities incurred by a company under your unlawful directorship.
Also, should the opportunity arise while you’re disqualified, you can’t be a: solicitor, barrister or accountant; pension trustee; registered social landlord; receiver or insolvency practitioner; and you can’t sit on the board of a charity, school or police authority, nor a health or social care body.
What this means to you
The Company Directors Disqualification Act dates back to 1986. In 2016-17, the Insolvency Service disqualified 1,214 directors. Of these, 12% were disqualified for ten or more years (the average is 5.8 years). Source
If you receive a director disqualification order, it’s wise to take specialist legal advice. Of course, we can help with that.
One option – in suitable circumstances – might be to voluntarily disqualify yourself, resign from your post and so end court action.
But there are alternatives.
Somewhat surprisingly, it is possible to apply to the court for leave to act as a director, or to take part in the management of the company while disqualified.
Or you can appeal against the decision. If you want to appeal, we will help defend your case in court.
With our specialist insight into how the Insolvency Service works, we have successfully defended many other directors from being disqualified. Maybe we can help you too.
Give us a call on 020 7467 3980.
10 top tips
- Don’t ignore any letters you receive from the Insolvency Service in the hope that the claim will go away – it won’t
- If you receive a Section 16 Notice, ask to see the draft director disqualification claim affidavit – this details the basis of the claim and the evidence against you, and will help prepare your response
- Don’t respond without checking all the relevant documentation. You have the right to ask the liquidator to supply any paperwork you need
- Don’t be pressured into responding in a hurry. You have the right to ask for sufficient time to reply
- Be aware that the Insolvency Service must commence legal proceedings within three years if the liquidation/administration took place after October 2015, otherwise it must be within two years. They often leave it until the last minute, but you still have the right to request enough time to respond
- Be aware that you can negotiate a shorter period of disqualification, which could have an enormous impact on your future career
- Be aware that you can seek permission from the director disqualification courts to act as a director or be involved in the management of a business, especially if your disqualification period is less than ten years
- Remember that you cannot continue to run the company as a ‘shadow director’, as it is a criminal offence even if you are a majority shareholder
- What’s more, you cannot act as a ‘de facto director’, that is, effectively managing the company as an employee. This is also a criminal offence
- Remember that anything you do or say could be used in evidence against you, so don’t try to deal with the claim yourself as (admit it – you don’t know what you don’t know). Give us a call and we’ll help