Director Disqualification

 If you are a director and have concerns about your duties or are facing an investigation, it is crucial to seek legal advice immediately. We explore below some of the key aspects of director disqualification.

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.  

When and how can I be disqualified as a director?

When a company enters a formal insolvency process, such as liquidation, the appointed insolvency practitioner investigates the directors' conduct. This report is submitted to the Insolvency Service, which may then initiate an investigation if there is evidence of misconduct. A director can be disqualified for a range of behaviours, from failing to keep proper company records to more serious actions like trading while insolvent. The Insolvency Service focuses on actions that may not have been in the wider public interest. Disqualification prevents an individual from being a director but does not stop them from operating as a sole trader or a partner in a traditional partnership. 

What do I do it I get a letter or questionnaire from the Insolvency Service?

The Insolvency Service will often send a questionnaire or a letter inviting you to an interview to understand your role and the company's financial history. The information you provide at this early stage is highly influential and can significantly impact whether they decide to pursue director disqualification proceedings against you. It is crucial to get legal advice to help you prepare a response that directly addresses their questions without inadvertently creating future problems.

Section 16 Letter – the best response

Receiving a Section 16 letter from the Insolvency Service is a serious matter that can lead to director disqualification if not handled correctly. While you might consider ignoring the letter or attempting to manage the situation alone, these approaches often result in a disqualification order and additional legal costs. The most effective way to navigate this is to seek legal guidance to craft a comprehensive response that addresses the allegations and presents your case. In many instances, a well-prepared letter can persuade the Insolvency Service to drop the proceedings.

Director Disqualification undertakings - the details

Since the year 2000, a Disqualification Undertaking has provided a way for company directors facing a potential disqualification claim to bring the matter to a swift and cost-effective end without court proceedings. While this voluntary agreement can save you significant time and money, it's crucial to understand the long-term consequences, including potential restrictions on your future business activities and the possibility of a compensation order. Signing an undertaking makes it a matter of public record, and any breach can lead to serious penalties. To ensure you make the best decision for your circumstances and avoid future issues, it is essential to seek legal advice.

Director Disqualification Proceedings - defending

If Insolvency Service find evidence of misconduct, they can initiate disqualification proceedings, which can be a complex and expensive legal process. They will issue a claim with an affidavit and exhibit outlining the allegations against you. Responding to these allegations requires a strong legal strategy and comprehensive evidence to demonstrate that your actions were not against the public interest. If successful, you may be able to recover a significant portion of your legal costs, but if you lose, you could be liable for the Insolvency Service's costs in addition to your own. Facing this process alone can be daunting. Let us help you navigate the complexities of director disqualification proceedings. 

Compensation Order – the details

A Director Disqualification Undertaking, once a straightforward way to conclude disqualification proceedings, now carries a significant financial risk. Since the introduction of Compensation Orders in 2015, signing this agreement can make you personally liable to repay the company's creditors for losses caused by your conduct. This shift has turned a relatively simple resolution into one with serious financial consequences, potentially leading to the loss of personal assets. Because agreeing to a Disqualification Undertaking makes you strictly liable, it's critical to understand the full implications before you sign. 

Section 17 Application

If you're facing or are already subject to a director disqualification, you may still be able to continue your role as a director or be involved in company management. Under Section 17 of the Company Directors Disqualification Act 1986, you can apply to the court for permission to continue your work. To be successful, you must demonstrate to the court that the public will be protected and that measures are in place to prevent past issues from recurring. We can help you navigate this process, preparing the necessary evidence and witness statements to give your application the best chance of success.

Our detailed, downloadable guides on all of these issues are designed to provide you with all the essential information you need. However, we suggest you contact us to make an appointment so we can discuss your situation with you in more detail.