Director Disqualification
Director Disqualification: An Overview
Director disqualification proceedings are usually commenced under the provisions of the Company Directors Disqualification Act 1986 (‘CDDA 1986’). Such proceedings are brought against directors. However, it is not only the directors registered at Companies House who may be the subject of an investigation or court proceedings.
A person may be a director in law, and therefore subject to proceedings, even if not registered at Companies House. Such persons may be targeted as de facto directors or as shadow directors.
To establish the case, the Secretary of State will usually have to demonstrate that the director has been involved in or allowed others to be involved in unfit conduct. The definition of unfit conduct must be determined on the facts of each individual case.
Generally, proceedings will have to be commenced against the director within two years of the date of the formal insolvency of the company to which the conduct relates. If a Director Disqualification Order is made, it will last between 2 and 15 years, depending on the severity of the admitted or proven unfit conduct.
Defending Directors from Disqualification
If you are facing the prospect of being disqualified as a director, it is crucial to understand the grounds for director disqualification proceedings and seek specialist legal advice as early as possible.
Insolvency laws, procedures and director disqualification proceedings are complex and require expert guidance to achieve a successful outcome.
Reasons to choose KANGS in director disqualification investigations and proceedings:
- Any person who is at risk of being banned from being a company director can be confident in our proven expertise and successful history of managing the most complex cases.
- With a team of award-winning solicitors specialising in insolvency and fraud litigation, we provide strategic guidance to clients facing director disqualification proceedings tailored to protect their interests.
- Our solicitors provide compassionate support alongside robust legal representation because we understand the personal and professional stakes involved for a company director.
If you are facing the prospect of being banned from being a company director, choosing KANGS means securing the expertise of a dedicated team committed to protecting your rights and achieving the best possible outcome in director disqualification proceedings.
For further information regarding director disqualification, please see our Frequently Asked Questions.
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What do I do if faced with being Disqualified as a Director?
In response to a letter from the Secretary of State (or its appointed solicitors) the well advised director will meet the claim head on and respond to it in appropriate terms.
This will usually involve preparing written representations to the Secretary of State and/or having a face-to-face meeting with the Secretary of State to ensure that the director’s position is fully understood by the Secretary of State.
Obtaining and interpreting the Secretary of State’s evidence bundle is a crucial first step, so that the full extent of the alleged case against the director is understood.
Many director disqualification cases can be successfully defended on the basis of misunderstandings and errors contained in the Claimant’s evidence.
What is a 'Director's Response'?
The response from a company director will very much depend on the facts of each case and on what the director wishes to achieve by way of an outcome.
The options available to a company director include:
- Fighting to defeat the claim in its entirety, or
- Negotiating a lower period of disqualification than that being offered by the Secretary of State, or
- Entering into a director disqualification “undertaking” in agreed terms to end the proceedings
Is director disqualification inevitable?
No. It isn’t.
The Secretary of State in putting together a case against a company director often only knows one side or part of the story. It is vital that the director who has “lived” the story puts this version of the events to the Secretary of State at the earliest opportunity.
What is a Director Disqualification Undertaking?
An “Undertaking” is a document which details the unfit conduct that a director may be willing to admit to in order to end the claim as quickly and cost effectively as possible.
An Undertaking can be entered into before or after the commencement of formal court proceedings.
The terms of the Undertaking need to be carefully scrutinised and agreed in terms that are acceptable to the director so that, for example, those terms do not leave the director exposed to other civil or criminal action.
If I am disqualified, can I still manage and run a new business?
Not necessarily.
A Director Disqualification Order usually precludes the disqualified director from being involved in “the promotion, formation or management” of another Limited Company, during the currency of the disqualification.
“Management” is widely construed and it is very easy for a director to become involved in a new business and to unwittingly breach a Director Disqualification Order.
Such a breach has criminal law and civil law consequences for the Director.
The Secretary of State surely won’t withdraw the threat of proceedings?
Yes, this can and often does happen if the director can demonstrate that at no stage could any action or inaction by the director be deemed to amount to unfit conduct.
The Secretary of State can and does review the director disqualification proceedings at every stage of the case, even after the issue and service of formal court proceedings.
It is not unusual for director disqualification proceedings to be abandoned by the Secretary of State, even after the commencement of legal proceedings.
What is “Unfit Conduct”?
Each case will be unique but there are many common examples when the Secretary of State may allege that the director is guilty of unfit conduct.
For example, the Secretary of State may allege that the director:
- Caused the company to trade on for too long (“trading to the detriment of the Creditors” or “trading with knowledge of insolvency”)
- “Traded to the detriment of the Crown” or failed in the statutory obligations, by allowing the company to run up Crown debts, in respect of any combination of VAT, PAYE and Corporation Tax
- Entered into transactions to the detriment of the company (e.g. paying off a personally guaranteed bank debt prior to insolvency) or by selling company assets at an undervalue
- Failed to maintain, preserve or deliver up the books and records of the company to its appointed Insolvency Practitioner
What if I'm not sure I can afford to oppose the claims?
Often the Secretary of State will not seek to recover legal costs from the director if matters resolve before the commencement of proceedings.
Legal Aid is not ordinarily available to defend director disqualification claims. The director may be compelled to fund the legal expense of defending or negotiating a settlement of the claim.
If the right advice is sought and given at the very early stages of a claim it is often money well spent.
How can the director end the proceedings?
This can happen in several ways and some examples of how the director can bring proceedings to an end include by:
- Successfully defend the claim at a final hearing, or
- Persuading the Secretary of State to abandon the case, or
- Entering into a Director Disqualification Undertaking
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