Company Director Disqualification Legislation
The intent behind the issue by the Court of Director Disqualification Orders is to prevent those whose conduct in relation to the management of one or more companies has proven to be unacceptable, having regard to, inter alia, the requirements of prevailing company legislation, to the extent that it is appropriate to disqualify such individual(s) from being involved in the running of any registered company for such period as the Disqualification Order dictates.
Upon insolvency, a Liquidator or an Administrator will be appointed and, as part of the insolvency process, a formal written Report will be submitted to the Insolvency Service outlining all aspects leading to the failure of the company including the conduct of the director(s), and the extent of any director culpability significant in its failure.
If considered appropriate, the Insolvency Service will require the director(s) to account in detail for his conduct and, where wrongdoing is suspected, Disqualification Proceedings may be commenced.
The Company Directors Disqualification Act 1986 (‘the Act’) sets out the circumstances where a director can be disqualified following both insolvency and dissolution.
The Act also encompasses those deemed to have officiated in the position of ‘Shadow Director’.
John Veale highlights the relevant legislation.
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The Relevant Law
The Act provides as follows.
‘ Disqualification orders: general.
(1) In the circumstances specified below in this Act a court may, and under sections 6 and 9A shall, make against a person a disqualification order, that is to say an order that for a period specified in the order—
(a) he shall not be a director of a company, act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of the court, and
(b) he shall not act as an insolvency practitioner.
(4) A disqualification order may be made on grounds which are or include matters other than criminal convictions, notwithstanding that the person in respect of whom it is to be made may be criminally liable in respect of those matters.’
‘Duty of court to disqualify unfit directors
(1) The court shall make a disqualification order against a person in any case where, on an application under this section,
(a) the court is satisfied—
(i) that the person is or has been a director of a company which has at any time become insolvent (whether while the person was a director or subsequently), or
(ii) that the person has been a director of a company which has at any time been dissolved without becoming insolvent (whether while the person was a director or subsequently) and
(b) the court is satisfied that the person’s conduct as a director of that company (either taken alone or taken together with the person’s conduct as a director of one or more other companies or overseas companies) makes the person unfit to be concerned in the management of a company.’
Disqualification of director on finding of unfitness.
(1) If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order should be made against a person who is, or has been, a director or shadow director of a company, he may apply to the court for such an order….
(2) The court may make a disqualification order against a person where, on an application under this section, it is satisfied that his conduct in relation to the company (either taken alone or taken together with his conduct as a director or shadow director of one or more other companies or overseas companies) makes him unfit to be concerned in the management of a company.
Additionally, throughout the course of the Act reference is made to the following specific misconduct which may result in disqualification, including:
- conviction for an indictable offence, a summary conviction or persistent breaches of company legislation,
- fraud in the winding up of a company,
- certain convictions abroad,
- competition infringement,
- participation in wrongful trading,
- being an undischarged bankrupt.
Who Can I Contact for Advice & Help?
Misconduct covered by the Act may ultimately result in one or more of a:
- Disqualification Order up to a maximum of fifteen years,
- Prison Sentence.
The potential consequences following mismanagement of a company are, therefore, potentially extremely serious.
Accordingly, if you are, or become, subject to investigation by any authority, including the Insolvency Service, relating to your involvement with an insolvent or potentially insolvent company, it is essential that you seek immediate expert professional advice and guidance.
There are steps available to potentially mitigate your position, such as negotiating a Formal Undertaking, but such a procedure is technical in nature and requires experienced handling.
The Team at Kangs Solicitors is well versed in guiding clients through such difficulties and, if you require assistance, please do not hesitate to contact our Team through any of the following who will be delighted to hear from you...