Defending a Director Disqualification claim

Disqualification Undertaking

If the Insolvency Service seeks to disqualify you as a director, you can either be disqualified or by offering a Disqualification Undertaking – subject to the conditions and issues which that will create.  The Insolvency Service pursues director disqualification to show the public, at large, that they are taking all available steps to ensure that directors who run companies which fail will be removed as directors so that they cannot abuse the limited liability process and run up large sums of monies which, ultimately means, that the companies’ creditors end up losing money. As a result, there is usually a temptation, for the Insolvency Service, to go after the easiest claims as they are interested in the numbers of disqualifications that they achieve rather than the seriousness of the allegations. 

The Insolvency issues a claim

When a claim is issued against you then it follows its own process – within the Company Directors Disqualification Process – and not the standard process of a court claim. As a result, there are no particulars of claim but rather an affidavit and exhibit – setting out the grounds and evidence that support the claim and the misconduct behind it.  

Once the claim has been issued at the court, then it receives a case number and a date for a hearing will be fixed. The documents are then served on the director, or the solicitors instructed on his behalf, by the Insolvency Service or by solicitors acting on their behalf.  

Upon receipt of the documents then, technically, you have 28 days to send back your response (ordinarily know as your “defence”) to the Secretary of State. However, this period is usually capable of being extended to ensure that you have sufficient time to prepare.   

The first hearing will usually be adjourned with directions set down for the filing of evidence – both from you, the director, but also for the Insolvency Service to have the opportunity to file evidence in response.  

There will then follow further evidence from both sides until ultimately you, your solicitor and barrister will have to attend the court to argue that you should not be disqualified. That hearing will be based on the evidence that has been filed by both sides and the arguments which can be generated from it by the barristers instructed by both sides.

The submission of evidence in the proceedings

If you ask us to represent you, we will meet with you and have a substantial initial discussion. The purpose of this meeting will be to discuss and agree the position you wish to take regarding the allegations in the proceedings.   It may well be that we also meet with counsel, either at the first meeting or a later stage, to discuss the allegations and agree a strategy to move forward.  

The evidence that we put together and then submit to support your position should not only come from you but should also, where possible, from your co-directors, and other members of the team as well as accountants and financial advisors – as appropriate. Whilst the court will expect you to provide as much evidence as possible it must be relevant and, if other individuals are willing to provide evidence on your behalf, they must understand they will need ultimately to attend court and be questioned by the court and not only your barrister but also the barrister representing the Secretary of State.

The makeup of your evidence

Unfortunately, there is no specific precedent, provided by the Insolvency Service, dealing with the type of evidence that you need to submit in disqualification proceedings. The evidence you file, if you should decide following advice and an assessment of the claim, needs to be sufficient to answer the allegations that you are facing in the claim.  It also needs to be capable of being put into an exhibit to the statement (known as an affidavit in disqualification proceedings) and then submitted to the court. 

The purpose behind your submitting evidence is to allow you, as the defendant, to secure two outcomes. The first is to substantiate the statement which would appear in your affidavit that you, as a director of the company that was put into insolvency, did not act in a way that led the company and its creditors to being in a worse position.  

The second reason for the evidence is that, when we are preparing for or at the final hearing, it provides a way for us (and the barrister at the final hearing) to argue against the evidence of the Secretary of State being sufficient to ensure that they can reach the level required by the court to satisfy itself that your actions were against the public interest. This may allow us to reach a settlement with the Secretary of State to dismiss or withdraw their claim – again, depending on the evidence. 

What does this cost?

Unfortunately, should you find yourself facing a claim then the costs of choosing to defend those proceedings can be substantial. The amount will depend on the allegations you are facing, the amount of evidence involved and the attitude of the Insolvency Service to your position. If you choose to proceed then you will be responsible for our costs in representing you. You will also be responsible for the costs of counsel, who we will instruct to assist you, in assisting with the preparation of the case and attendance at the court hearings.  

If the matter should go all the way to a final hearing, we will work to try to prevent that but it is not always possible, and you win or the Insolvency Service withdraws their claim before the hearing then, as the winner, you will be able to recover costs from the Secretary of State. This would normally be in the region of around 75% of the costs (including counsel). It may be that it ends up higher or lower than that, depending on the view of the court, but that is a good starting point. Unfortunately, the other side to that is if you lose the claim then, in addition to our costs, you will also have to pay the costs of the Secretary of State (including their counsel). As above – a figure of around 75% would be a good place to start.  

As an example for you of the numbers involved in relation to costs, based on our team’s previous experience in dealing with the defending of director disqualification claims, a likely estimate of our costs in defending a claim will be in the region of £85,000 to £115,000 plus VAT – including counsel’s fees. 

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.