Director Duties - Disqualification issues
While anyone over 16 can become a director, certain individuals, such as those who are disqualified or undischarged bankrupts, are not permitted to serve. Disqualification can result from "unfit conduct" like trading while insolvent, fraudulent behaviour, or failing to maintain proper financial records. Violating a disqualification order is a serious criminal offence that can lead to fines, imprisonment, and personal liability for company debts.
Who can act as a director?
Any person who is old enough (16 or over) is legally entitled to act as a director of a company (even if, at the time, they are directors of company that is insolvent), unless they are:
- Disqualified from being involved in the management (directly or indirectly) of a limited company
- A bankrupt who is, at the time, undischarged
- Subject to a debt relief order
- Subject to a bankruptcy order or debt relief restrictions
What is expected of a director?
All Directors of a limited company must in their operation and day to day involvement:
- Carry out their duties honestly and responsibly
- Ensure that both they and their company comply with both the law and all the relevant regulations
- Exercise skill and care and bear in mind, whilst doing so, the interests of all the company's creditors, shareholders, employees, customers
What is unfit conduct?
A director may be disqualified following either the outcome of the civil regime (claim issued by the Insolvency Service) or a conviction for an offence under the criminal regime. Unfit conduct can include:
- Continuing to trade, at a time when you knew or ought to have known, that the company was insolvent – doing so to the detriment of creditors
- Conduct that deliberately puts assets beyond the reach of creditors
- Fraudulent behaviour
- Failure to keep or deliver up appropriate accounting records
- Failure to prepare and file accounts or make returns to Companies House
- Failure to submit tax returns and/or pay monies (as due) to the Crown
- Failure to comply with other regulatory requirements
- Failure to co-operate, as appropriate, with as appointed, official receiver or insolvency practitioner
What happens if there is a breach of a disqualification order, disqualification undertaking or a bankruptcy restriction order?
The consequences of you breaching a disqualification order, disqualification undertaking or a bankruptcy restriction order by acting as a director or a shadow director without having made an application under section 17 of the Company Director Disqualification Act 1986 and received the court's permission is a criminal offence. The sentence which can be handed out if you are found to have breached the same is an unlimited fine or up to two years in prison. It is also possible that if you are found to have been in breach of the order or the undertaking then you can end being held to be personally liable for the company's debts incurred during the period of the breach.
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.