How to remain a director whilst disqualified?

The relevant section – “Section 17 of the Company Director Disqualification Act 1986 (“CDDA 1986”)

If you have been disqualified or are facing disqualification proceedings then, Section 17 the CDDA is the basis on which you can make a court application. This application will, if you are successful, allow you to:

• Before the ban has taken effect - remain as a director of your current business
• If you have been banned then to be appointed a director again
• Whilst being disqualified for you to be involved in the management of your business.

Why would a court allow permission following a disqualification ban?

When considering this question, it is important to remember that the point of disqualification is to seek to prevent a repetition of the same behaviour that occurred previously. The point of disqualification is:

• protecting the public
• to ensure that directors act appropriately and properly in respect of their duties and conduct.

To give yourself the best chance of obtaining leave, from the court, to be a director or to be involved in the management of a company you need to show both that the public will be protected and that there are appropriate conditions in place to ensure that what happened before won’t happen again.

The best time for making an application under Section 17?

When involved in a disqualification proceedings, either acting for yourself or if you have instructed solicitors, it is critical that you consider all the facts before deciding when it is best to make the application.

In cases where you have not yet become subject to disqualification then the timing is, perhaps, more critical still. There are three general stages, in which, you can choose to make the application – these are as follows:

1. Thinking of providing a Director Disqualification Undertaking

When you have been in the process of correspondence with the Insolvency Service or are facing the issuing of a claim and, consequently (either by yourself or as a result of receiving legal advice) you are thinking of signing an undertaking then at that point you would need to resign your position as a director within 21 days.

• As a result, and ideally you would have prepared the application and for it to be then heard at the court before the 21-day period expires.
• If this is achieved, and the court approves your application, you would not need to resign your position and can remain as a director.
• If it does not happen – for whatever reason – then you would have to cease acting within the business, in a management capacity, or face potentially being in breach of the terms of the undertaking.

We can offer you advice and allow you to work through the issues and then agree resolutions to those issues so that we can move to a positive outcome – where possible.

2. At the final hearing (the trial) of your Director Disqualification Proceedings

If you have chosen to defend the disqualification proceedings and you have reached the final hearing of the matter at court then, it should be part of your preparation for the final hearing to consider what happens if you are unsuccessful. This is on the basis that, if you lose and are disqualified by the court, then it would be standard for you to be given 21 days to resign as a director.

• You should, with your legal team, decide on whether or not you instruct your legal team to draft a Section 17 application so that, if you are unsuccessful, then you can put the application to the court at the hearing.
• The reason why you should seek legal advice as the decision to be made is a time critical decision and needs to be considered carefully before coming to a decision.

3. If you are already disqualified   

Should you have not involved yourself within the director disqualification proceedings or signed a disqualification undertaking and, as a result, have already been disqualified but then your circumstances change and you need to be able to be involved within the management of a company or to be a director – at this point then the timing of the application is not as critical because you are already disqualified. The important thing, in this situation, is to make sure that you application is in the best possible shape when it is filed with the court.

Steps to take when making the application

The steps that you need to take to make the application are reasonably straightforward. The application, once drafted, is filed with the court together with a supporting witness statement and exhibit to provide the relevant evidence.

• The makeup of the witness statement and its exhibit is the most important part of the process, and it is critical that this contains the right information and legal advice is of assistance at this point.
• There is no point in putting the application into the court until such time as the evidence covers the points necessary to give the application its best chance of success.
• This is on the basis that, due to the nature of the application, it is unlikely that the judge will make the order for permission unless the evidence allows it to feel that the public is properly protected.

We will review the basis of your application as well as the evidence and conditions that will be needed to do all we can to secure the best chance for the application’s success. If it is necessary we will approach and work with all relevant third parties - other directors, accountants or other third-party suppliers to the business – as appropriate.

In addition to this, and where appropriate, we will instruct barristers who have a specialism in director disqualification work who are able to assist us, and you, in giving you the best chances of your application being a success.

Conditions attached to permission granted by the court

It is almost inevitable, as has been alluded to above, that if the court is to approve the application and allows you to remain a director/be involved in the management of a company – that they will expect/impose conditions to be placed on the approval. It should be borne in mind that where these are attached to the permission, a failure to comply with them, will mean that the permission has been breached and the order will fail. If this occurs, then you would be in breach of both the section 17 order as well as the original disqualification order.

We can provide advice as to the conditions required and, where possible to do so, we can include them within the application and supporting evidence. In doing so this will, in our experience, find favour with the judge and is likely to provide a more positive outcome to the application.

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.