Are you facing an investigation by the Secretary of State or by an administrator or liquidator, and potential court action, in relation to the running of a company? Either of these situations can have serious business and personal consequences.

Our solicitors have considerable experience acting for directors and other individuals facing disqualification proceedings under the Company Directors Disqualification Act 1986.  

Our directors disqualification solicitors guide directors through the legal minefield, minimising the personal and business impact of such investigations and, where possible, avoiding disqualification or helping to reduce the length of disqualification. We have also acted for individuals who came to us having already been made the subject of a disqualification order or given a disqualification undertaking.

Background about directors disqualifications

When a company goes into liquidation or administration, the insolvency practitioner appointed to deal with the failed business is under a statutory duty to investigate the affairs of the company, including the conduct of its director(s). In a compulsory liquidation, the investigation is carried out by the Official Receiver.

Inquiries can go right back into an individual’s past history as a director of the company in question, and any other companies, and also into their conduct after they are no longer a director if it relates to a matter connected with or arising out of the insolvency of that company.

“Director” can include a ‘shadow director’ – defined as being a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

As well as former directors, ‘de facto’ directors can be investigated. A de facto director is a person who acts as if they are a director but are not actually appointed as one, or whose appointment has now expired.

Examples of misconduct which may warrant disqualification

The sort of misconduct that typically will not go unnoticed includes:

• Non-payment of Crown debts
• Concealing assets
• Unexplained deficiency in the accounts
• Appropriation of assets to other companies for no value or at an undervalue or on the basis of unreasonable charges for services
• Transactions personally benefitting the director(s) or their families
• Overvaluing of assets in accounts so as to obtain loans or other financial accommodation or to mislead creditors
• Loans to the director(s) in making share purchases
• Dishonoured cheques
• Use of delaying tactics
• Phoenix operations (a company that has emerged from the collapse of another via insolvency)
• Misconduct in relation to the operation of a factoring account
• Preferential payments to creditors or guarantors
• Taking deposits whilst failing to supply goods or services
• Transactions at an undervalue
• Wrongful or fraudulent trading
• Where criminal convictions have resulted

When can a director be disqualified?

A director of a limited company can be disqualified following a criminal conviction. However, the rules vary depending on whether a director is convicted of an indictable offence or following three default orders or convictions for summary offences within the preceding five years.

Further, it is not a requirement that the offence took place within the company; the offence may relate to the defendant's role within the company. The offence need not concern misconduct of the company's affairs or dishonesty. Moreover, the defendant does not have to have been a director at the time of the offence or at the sentencing hearing, nor does the defendant have to be a ‘shadow director’.

What is a Directors Disqualification Order (DDO)?

A directors disqualification order (DDO) disqualifies a person from operating with limited liability. It is used as a penalty in addition to the offence, the purpose of which is to protect the public from those who, for reasons of dishonesty, naivety or incompetence, abuse their role and status as director and may jeopardise creditors and others associated with the business of that director.

The effect of a DDO is that the relevant person subject to the Order must not:

• act as an insolvency practitioner;
• be a director of a company;
• be a liquidator or administrator of a company;
• be a receiver or manager of a company's property; and/or
• in any way, directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for a specified period beginning with the date of the order.

The use of a DDO is invariably intended to ensure that only reasonably competent, responsible and honest people act as company directors.

Outcomes of a director disqualification

If an allegation of unfitness to be a director is proven, a person can be banned from being a director for a period of between 2 and 15 years.The technical definition of a director disqualification means that the individual concerned cannot in any way – whether directly or indirectly – be concerned or take part in the promotion, formation or management of a company unless that person has the court’s permission.  

A director disqualification ban can have far reaching consequences – not just for the individual concerned, but also for their family, and any employees of a business set up by that individual since the demise of their previous business.

What happens if you breach a disqualification order or undertaking?

The consequences of breaching a director disqualification can be very grave:

• It is a criminal offence, which in serious cases could result in a period of imprisonment of up to 2 years or a fine or both; and/or  
• An individual can be held personally responsible for all the relevant debts of a company if, whilst the subject of a disqualification order or undertaking, they are involved in the management of a company.  

Such personal liability can also extend to any person who is involved in the management of a company and who is willing to act on instructions of a person who they know is a banned director or an undischarged bankrupt.

How we can help you

So how can we help you? Our expert team can advise and support you with:

• the investigations into your company and your conduct
• responding to the notice of intention to seek disqualification
• defending a claim for your disqualification as a director
• negotiating a disqualification undertaking (if appropriate)
• defending (or seeking to settle by the giving of an undertaking) any claim by the Secretary of State for a compensation order
• seeking permission to act as a director of specific companies notwithstanding disqualification
• applying to court to reduce the period of the disqualification undertaking or requesting that it cease to be in force
• minimising the risk of breaching a disqualification order or undertaking (helping you to arrange your professional affairs as best as possible)
• any claim against you for breach of a disqualification order or undertaking

Should you find yourself facing disqualification proceedings or are having problems since being made the subject of a disqualification order or after giving an undertaking, our team of expert solicitors can help talk you through the legal consequences and opportunities for your personal situation. Resolving issues of this type can be time sensitive so the sooner you seek our advice the better. 

If you would like further information about any of the issues raised please contact Kevin Sullivan on 01206 217376. If you are being convicted, please contact Tej Thakkar on 01206 217312.