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The role of company director comes with legal responsibilities and duties. Significant breach of directors duties, especially relating to financial matters, can result in disqualification.
Company directors can be disqualified for serious incompetence or where there have been deliberate acts which are unlawful or illegal. In addition to being disqualified, depending on the underlying reason, directors may be held personally liable financially for losses resulting to the company or creditors and in very serious cases, may be criminally liable.
Under the Company Directors Disqualification Act 1986 any person may report a director and assert that he or she should be investigated.
While a director disqualification may have a set time frame, its repercussions can extend far beyond the penalty period. and will typically include :-:
Disclosure Requirements - even after the disqualification expires, you may be obligated to disclose it in certain situations, potentially limiting future employment opportunities, and particularly at executive levels.
Restricted Business Activities - disqualification can restrict your involvement in specific regulated businesses, especially financial services or regulated businesses, hindering your employment options.
Funding Challenges - if you set up a new business after your disqualification ends, Securing funding for a new company is likely to be much more difficult due to the past disqualification. Traditional lenders may be wary, and you might encounter stricter requirements.
HMRC Scrutiny - disqualification can raise red flags for HMRC, making them more likely to request bonds (guarantees) for your company's PAYE (payroll taxes) and VAT (sales tax) payments.
Situations where directors are at risk of disqualification generally include :-
Wrongful trading in the lead up to insolvency - the most common way this happens is where directors allow the company to continue trading when it is insolvent. Where there is fraudulent intent, this is even more serious. When an Insolvency Practitioner is appointed, he or she has a duty to consider directors conduct.
Failure to prepare and/or submit the company's statutory accounts - the types of accounts which must be filed will depend primarily on the turnover of the business, with the vast majority of SME businesses, only being required to submit abridged accounts.
Where the company's accounts are inaccurate.
Where a director uses company money or assets for their own benefit.
Where a director fails to co-operate with an appointed Insolvency Practitioner or the Official Receiver.
The Insolvency Service typically gathers information from directors and insolvency practitioners before deciding to close the investigation or proceed with disqualification. The Service might reconsider disqualification upon receiving new, previously unconsidered information, but such instances are rare.
Insurance Coverage - As a first step, check whether you may have existing insurance policies that might cover legal costs associated with potential disqualification proceedings.
Co-operate with investigation - The best chance of avoiding disqualification lies in promptly engaging with the investigation before a decision is made. Remember, the investigators are experienced – seemingly simple questions can contain hidden complexities.
Seek Legal Advice - Experienced lawyers will help you understand the investigation process and ensure you're appropriately represented. Attending a meeting without legal support can be detrimental to your case.
We have a proven track record of assisting directors through investigations and meetings. We are experienced in dealing with the Insolvency Service, often leading to the closure of investigations. We advise company directors facing proceedings for disqualification. Instructing us means you will get experienced help in :-
advising you whether you have reasonable prospects of successfully arguing that a disqualification would be unnecessary and/or disproportionate.
where appropriate, seeking to reduce the length of any disqualification order as much as is possible.
representing you if you have been disqualified and a further claim is made that you are in breach of the order in some way such as acting as a shadow director
Please do get in contact.
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Head of Civil Litigation, Commercial Litigation, Group Litigation & Insolvency
Originally in her career, having worked on insolvency disputes, Meta advises insolvency practitioners, directors and debtors who are facing claims from liquidators or trustees. She gained valuable experience in managing trading businesses whilst workin......Call the Taylor Rose team or fill out the form below and we will get back to you as soon as possible.
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