Directors Disqualification Orders and Undertakings | Consequences of Breach
In our recent article ‘Company Director Disqualification | Company Offences Defence’, we explained the intent behind the issue by the Court of Director Disqualification Orders being primarily to punish unacceptable conduct concerning the administration of companies and to prevent those involved from further company involvement for such period as ordered.
By way of an alternative resolution mechanism, Director Disqualification Undertakings offer individuals facing director disqualification an opportunity to voluntarily agree to a ‘Disqualification Order’ without going through the court process.
Whether contained within an Order or an Undertaking, the terms as set out by the The Company Directors’ Disqualification Act 1986 (‘the Act’) will be very strict and the consequences following breach can be extremely serious.
John Veale explains the nature of Disqualification Undertakings and sets out the sanctions for breaches of the law.
Director Disqualification Undertakings
A Disqualification Undertaking will only be offered in circumstances where Disqualification Proceedings are proposed following a company’s insolvency, by virtue of Section 6 of the Act or the consequence of an investigation by the Secretary of State, Section 8 of the Act.
Where it is believed that an individual should be disqualified, the Secretary of State, will write to that individual offering resolution by way of a Voluntary Disqualification Undertaking in place of formal legal proceedings.
In order to offer such resolution, the Secretary of State must be satisfied that:
- The individual concerned is or has been a director of a company which has at any time become insolvent and that the conduct of that person shows that he is unfit to be concerned in the management of a company
- The procedure is in the ‘public interest’
The letter from the Secretary of State will, inter alia,
- Detail the allegations against the individual believed to justify disqualification, and
- Set out the period of Voluntary Disqualification offered to the individual for acceptance in order to avoid formal Disqualification Proceedings. This will range between two and fifteen years
Criminal Sanctions
The Act provides as follows at the following sections:
‘13 Criminal penalties.
—If a person acts in contravention of a disqualification order or disqualification undertaking ……., he is liable—
(a) on conviction on indictment, to imprisonment for not more than 2 years or a fine, or both; and
(b) on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both.’
‘14 Offences by body corporate.
(1) Where a body corporate is guilty of an offence of acting in contravention of a disqualification order or disqualification undertaking or in contravention of section 12A, and it is proved that the offence occurred with the consent or connivance of, or was attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate, or any person who was purporting to act in any such capacity he, as well as the body corporate, is guilty of the offence and liable to be proceeded against and punished accordingly.
(2) Where the affairs of a body corporate are managed by its members, subsection (1) applies in relation to the acts and defaults of a member in connection with his functions of management as if he were a director of the body corporate.’
‘15 Personal liability for company’s debts where person acts while disqualified.
(1) A person is personally responsible for all the relevant debts of a company if at any time—
(a) in contravention of a disqualification order or disqualification undertaking …. he is involved in the management of the company, or
(b) as a person who is involved in the management of the company, he acts or is willing to act on instructions given without the leave of the court by a person whom he knows at that time—
(i) to be the subject of a disqualification order made or disqualification undertaking accepted under this Act or under the Company Directors Disqualification (Northern Ireland) Order 2002, or
(ii) to be an undischarged bankrupt.
(2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.
(3) For the purposes of this section the relevant debts of a company are—
(a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and
(b) in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.
(4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company.
(5) For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given without the leave of the court by a person whom he knew at that time—
(a) to be the subject of a disqualification order made or disqualification undertaking accepted under this Act or under the Company Directors Disqualification (Northern Ireland) Order 2002, or
(b) to be an undischarged bankrupt,
is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.’
Who Can I Contact for Advice & Help?
As will be seen from the above breaches of the terms of Disqualification Orders and Undertakings can have very serious consequences including imprisonment and assumption of personal liability for company debt.
If you are, or anticipate becoming, subject to investigation by the Insolvency Service or other prosecuting authority in relation to any breach of company law legislation, including breach of a Director’s Disqualification Order or Undertaking, you should seek immediate professional advice.
Please do not hesitate to contact the Team at Kangs Solicitors through any of the following who will be pleased to speak to you:
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