Company Directors Disqualification

What is the Director Disqualification Act?

A disqualification order is made by the court under the Company Directors Disqualification Act 1986. The Act applies not only to a person who has been formally appointed as a director, but also to those people who have carried out the functions of a director and to shadow directors.

You can be disqualified, i.e. banned, from being a company director if you act in an ‘unfit’ manner, such as illegally or fraudulently, and abuse your position of power and trust. Improper conduct does not have to be deliberate; it can also be a result of negligence.

Disqualification of Directors ‘Unfit’ Behaviour

Below are some example of ‘unfit’ behaviour that can result in disqualification of directors:

• Failing to keep proper company accounting records.
• Failing to pay company tax.
• Failing to send annual company accounts or returns to Companies House.
• Failing to cooperate with the Insolvency Practitioner.
• Misrepresenting or lying about company facts.
• Withdrawing excessive salaries when the company was clearly insolvent.
• Continuing to trade when the company was clearly insolvent (wrongful trading).
• Using company funds or assets for personal benefit or gain.
• Fraud.
• Criminal acts.

What Happens in a Disqualification of Directors Investigation?

If The Insolvency Service receives a complaint about you, or if your company is involved in insolvency proceedings, they will investigate you. If they believe you have acted improperly, they will take you to court, or you can voluntarily disqualify yourself and end court action (this is known as disqualification undertaking).

What are the Consequences of Directors Disqualification?

A disqualification order can be made under a number of different sections of the Company Director Disqualification Act 1986. The order will specify the period of disqualification. For orders made against an unfit director of an insolvent company, there is a minimum period of 2 years and a maximum of 15 years.

A disqualification order comes with serious consequences, so it’s vital to understand the Director Disqualification Act and seek proper, specialist legal advice if you are investigated.

Without gaining specific permission of the court, a disqualification order bans a person from:

• Acting as a director of a company registered in the UK or an overseas company with connection to the UK.
• Taking part, directly or indirectly, in the promotion, formation or management of a company.
• Being a liquidator or an administrator of a company.
• Being a receiver or manager of a company’s property.
• Instructing a third party to manage a company under your direction.

Disqualification of directors can have additional consequences, including:

• A tarnished reputation.
• Your disqualification details published online in the Companies House database.
• Personal liability for relevant company debts.
• Schools, charities, police authorities and health care organisations preventing you from joining the board.
• Professional bodies banning you from becoming a member.
• The need for consent from The Pensions Regulator to be a trustee of an occupational pension scheme.

Director Disqualification Barristers at St Pauls Chambers

Members of St Pauls have advised and appeared in a number of Directors Disqualification cases, both in contested hearings, applications for leave to act as a director under s17 and in compromising cases by way of undertakings. Jeremy Barnett has particular experience in this field.

Cases conducted include:

• Sec State v the Directors of Luton Town.
• Sec State v Q 2015, Case settled by way of undertakings and agreement on basis of disqualification.
• Sec State v P 2015, Contested hearing before HH Judge Hodge QC at Manchester High Court. This was a novel application under s8 of the CDDA 1986 where disqualification is not mandatory as under s6. Landbanking company had been wound up in public interest.
• Sec State v S 2014, Written submissions resulted in Sec State agreeing that there was no case to disqualify.
• Sec State v M 2015, Current case where the Defendant is one of four directors of a finance company who were leading in ‘Pension Liberation Schemes’.

Disqualification of Directors Lawyers

If you need legal advice regarding the Director Disqualification Act, or you are being investigated for disqualification of directors, contact our team of expert directors disqualification lawyers today.