A Section 16 Letter – what is the best response?
If you've received a Section 16 Letter from the Insolvency Service, it's understandable to feel unsure about what to do next. Let's explore the options available to you:
Choosing not to respond to a section 16 letter
While your initial instinct might be to avoid responding, unfortunately, this approach often leads to the very outcome you'd likely want to prevent – disqualification.
Without a response, the Insolvency Service will likely proceed with legal action, and if that is also ignored, the court will likely issue a disqualification order. The length of this disqualification could be as outlined in the Section 16 letter, or even longer, as it's ultimately decided by the judge. Additionally, you would typically be required to cover the Secretary of State's legal costs.
Attempting to defend the proceedings on your own, without legal guidance in an effort to save costs, often results in a disqualification order and the responsibility for those legal costs.
Seeking guidance on your response and options
The most helpful step you can take is to seek legal advice as soon as possible after receiving a Section 16 Letter. If you reach out to us, we can explain the entire process, what the letter means for you personally, and the potential risks involved with the proposed disqualification proceedings. Following our initial conversation and with your detailed input and responses to the Insolvency Service's questions and documents, we can often provide an initial assessment of whether there are arguments to potentially defend any claim.
Considering a Disqualification Undertaking
It's quite common for directors who receive a Section 16 letter and face potential disqualification proceedings to consider offering or signing a Disqualification Undertaking. This is a voluntary agreement made with the Secretary of State, rather than the Insolvency Service directly. By signing it, you would be disqualified from acting in the promotion, formation, or management of a company (directly or indirectly), just as if a court order had been issued. This inability to be involved lasts for the period specified in the Disqualification Undertaking, which you and a representative of the Secretary of State would both agree to and sign.
Crafting your response to the Insolvency Service/Secretary of State
We believe that the most constructive way to aim for the best possible outcome after receiving a Section 16 Letter is to seek advice from solicitors and work together to prepare a thoughtful and comprehensive response.
This response should address the allegations raised and provide your explanation of the actions you took. This letter would then be sent to the Insolvency Service or their appointed solicitors, if they have instructed any.
The content of this letter will be carefully based on your answers to the allegations and the evidence provided by the Insolvency Service in the Section 16 Letter and any other correspondence. We will also include your comments, responses, and any supporting documentation or evidence you have that would be valuable for the Insolvency Service to consider.
We have experience with cases where when the letter of representations is prepared in the right way, with your input, then it can be sufficient to persuade the Insolvency Service that the claim which they have presented, together with its supporting evidence, does not have sufficient merit to be successful and consequently they should discontinue the proceedings.
Our team has substantial experience in dealing with Director Disqualification claims. Our head of team has worked for both the Insolvency Service and the Secretary of State in bringing disqualification claims as well as represented many directors who have received Director Disqualification claims. In doing so we have worked with many directors to make their position clear and, as a consequence, been able to assist them in convincing the Insolvency Service/Secretary of State that to issue proceedings would not be in anyone’s best interest.
How our Restructuring & Insolvency team can help you
If you are a director and have concerns about your duties or are facing an investigation, it is crucial to seek legal advice immediately. Please contact Richard Ludlow on 01732 496493 or by the enquiry form on this page.