Company Directors Disqualification Act – CDDA 1986 Guide

Overview

Section 1 of the CDDA deals with general provisions and prohibitions relating to disqualification orders. It is worth noting that the CDDA is not a piece of legislation that only deals with company directors but has since been expanded to deal with members of insolvent partnerships, limited liability partnerships and shadow directors. We comment further on this below.

Purpose of the director disqualification regime

The power to make a disqualification order against directors has existed since the 1947 Companies Act.

Since that time there has been differing opinion as to whether the purpose of a disqualification order is a punishment, the protection of the public or the promotion of good behaviour amongst other directors. Whilst all three of these outcomes do have a bearing in these claims, it is the protection of the public argument that we most commonly hear cited by the Insolvency Service as justification in bringing disqualification cases against directors.

The deterrent effect and desire to raise the standards of responsibility amongst other directors is also important. In our opinion it is a core reason why we have also been seeing an increase in related compensation claims (to recover lost monies taken in COVID-19 related schemes) being brought by the Insolvency Service against disqualified directors. Whilst there has been some prior debate as to the effectiveness of disqualification proceedings per se as a deterrence, the increasing use of compensation claims following on from disqualification is no doubt have a wider impact.

A further important note at this stage is to state that these disqualification proceedings are civil in nature but can have criminal consequences depending on the nature of the offence by the relevant director. This is discussed further later in the guide dealing with Section 2 of the CDDA.

Restrictions imposed by the CDDA

If you are disqualified under the CDDA 1986, then you are prohibited from the following:

• Acting as a director of a company;
• Taking part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership; and
• Being a receiver of a company’s property.

Furthermore, it is important for directors to be aware that this does not simply relate to action within a company, and you are also prohibited from being involved in the following organisations:

• Charities
• Schools
• Pension trustees
• Police and police authorities
• Registered social landlords
• Health boards and social care bodies
• Solicitors, barristers, accountants, and other professionals

Periods of disqualification imposed by the CDDA.

Generally speaking, directors can be disqualified under the CDDA for a period ranging from 2 – 15 years, depending on the gravity of the misconduct concerned.  There are certain exceptions to this which we will explain in more detail below

Within the 2-15-year range there are three distinct director disqualification brackets

• 2-5 years. This lower bracket relates mainly to reckless or negligent conduct as a director
• 6-10 years. This bracket is classed as serious and covers conduct more prejudicial to the public interest
• 11-15 years. This bracket is reserved for the most serious types of director misconduct and generally relates to fraudulent or criminal behaviour.

How we can help

Our director disqualification team at FWJ advise clients on a wide range of issues arising from the Company Director Disqualification Act 1986 – including the general provisions set out in section 1 of the CDDA.

One example is helping individuals facing director disqualification understand whether they are allowed to carry on in their current employment or business role is a disqualification order is made. Others ways we can help relate to the offences the individual is accused of and what the most likely period of any director ban would be – and how it might be reduced.

Free Guides, Booklets & Useful links 

We offer a wide range of free Guides and Booklets for prospective clients to take away and read. Our full library is available for all to review in our free “FWJ Takeaway” resource hub – and we would encourage you to help yourself! We don’t just say we are the leading experts in this area of the law – we can prove it.

Examples of some of our Guides and Booklets include:

• 10 Common Mistakes in director disqualification proceedings
• Common director disqualification questions answered
• Directors Duties and liabilities explained
• What constitutes unfit conduct by directors? –  21 commonly asked questions
• Director Disqualification and bounce back loans

We have over 100 other free CDDA Guides and Booklets for you to look at – covering every element of the act and giving practical help on many different disqualification issues.

What our clients say about us

FWJ exceeded my expectations by not only avoiding an order for my disqualification as a director but also negotiating a complete withdrawal of the prosecution. This has been such a relief and weight off my mind after many years and I am very grateful to them. I strongly recommend instructing them at the very earliest opportunity. Timely advice, realistic expectations, prioritisation and logical legal presentation were key.

A company director we successfully defended against a director disqualification claim by the Registrar of Companies

Read the section in full

Disqualification orders: general

• [Disqualification order] 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–

1. 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
2. he shall not act as an insolvency practitioner.

• [Maximum, minimum periods] In each section of this Act which gives to a court power or, as the case may be, imposes on it the duty to make a disqualification order there is specified the maximum (and, in sections 6 and 8ZA, the minimum) period of disqualification which may or (as the case may be) must be imposed by means of the order and, unless the court otherwise orders, the period of disqualification so imposed shall begin at the end of the period of 21 days beginning with the date of the order.

• [Where two orders] Where a disqualification order is made against a person who is already subject to such an order or to a disqualification undertaking, the periods specified in those orders or, as the case may be, in the order and the undertaking shall run concurrently.

• [Criminal grounds] 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.

Overview

S1A of the CDDA has been included within the general provisions of Section 1 and represents one of the major reforms made by the Insolvency Act 2000.

For the first time, this allowed the Secretary of State and the relevant director to enter into an undertaking (agreement by contract) to agree a period of disqualification. Prior to this the process was much more cumbersome to agree a voluntary disqualification, the so called ‘Carecraft’ procedure, which still required the order of the court and therefore legal costs being incurred. The Carecraft procedure has now fallen into disuse as a result of the undertaking reforms brought in by S1A of the CDDA 1986.

An undertaking is a very useful route to consider should the director subsequently wish to seek permission to be a director of a company while disqualified via S17 of the CDDA (discussed below).

How we can help

It is vital to take legal advice prior to agreeing a voluntary disqualification undertaking. Whilst they might seem at first sight to be a quick and easy way to resolve a director disqualification claim, they can cause significant issues for a director which are best understood before accepting the offer of a voluntary undertaking.  These include

• Long lasting and damaging effects on your future business prospects
• Opening yourself up to a personal money claim via the Compensation Order regime in section 15A of the CDDA
• Potentially stopping your chances of making an application to become a director again pursuant to section 17 of the CDDA.
• Agreeing to allegations of director misconduct which are not accurate
• Exposing yourself to the risk of liquidator claims and legal costs

At Francis Wilks & Jones our team have helped 100’s directors since 2002 negotiate and resolve voluntary undertaking issues.

Free Guides, Booklets & Useful links

We have a range of useful Guides and Booklets dealing with Disqualification Undertakings.  In particular

• Disqualification undertakings – all you need to know
• The benefit and purpose of a disqualification undertaking
• Disqualification and compensation undertakings
• The risk and consequences of a disqualification undertaking
• Applying to reduce a disqualification undertaking period

For our complete range of Guides and Booklets dealing with disqualification undertakings and associated issues – check out our FWJ Takeaway Resource Hub. 

Read the section in full

Disqualification orders: general

• [Disqualification order] 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–

1. 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
2. he shall not act as an insolvency practitioner.

• [Maximum, minimum periods] In each section of this Act which gives to a court power or, as the case may be, imposes on it the duty to make a disqualification order there is specified the maximum (and, in sections 6 and 8ZA, the minimum) period of disqualification which may or (as the case may be) must be imposed by means of the order and, unless the court otherwise orders, the period of disqualification so imposed shall begin at the end of the period of 21 days beginning with the date of the order.

• [Where two orders] Where a disqualification order is made against a person who is already subject to such an order or to a disqualification undertaking, the periods specified in those orders or, as the case may be, in the order and the undertaking shall run concurrently.

• [Criminal grounds] 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.

1A Disqualification undertakings: general

• [Power of Secretary of State] In the circumstances specified in sections 5A, 7, 8, 8ZC and 8ZE the Secretary of State may accept a disqualification undertaking, that is to say an undertaking by any person that, for a period specified in the undertaking, the person–

1. will 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 a court, and
2. will not act as an insolvency practitioner.

• [Maximum period] The maximum period which may be specified in a disqualification undertaking is 15 years; and the minimum period which may be specified in a disqualification undertaking under section 7 or 8ZC is two years.

• [Undertakings, etc. to run concurrently] Where a disqualification undertaking by a person who is already subject to such an undertaking or to a disqualification order is accepted, the periods specified in those undertakings or (as the case may be) the undertaking and the order shall run concurrently.

• [Matters other than criminal convictions] In determining whether to accept a disqualification undertaking by any person, the Secretary of State may take account of matters other than criminal convictions, notwithstanding that the person may be criminally liable in respect of those matters.

Overview

Section 2 of the CDDA covers director disqualification on conviction of indictable offence.

The pre-condition that must be satisfied for the operation of Section 2 of the CDDA is that the relevant person has been convicted for an indictable offence. These are criminal sanctions arising out of serious crimes such as murder and manslaughter. An indictable offence is more serious than a summary offence (section 5 of the CDDA – see below) and will be dealt with in the Crown Court. Section 2 of the Company Director Disqualification Act 1986  therefore provides for the disqualification of a person who has engaged in criminal behaviour (this can be done by the same criminal court, or by a separate application). This power is, of course, discretionary pursuant to the wording of CDDA section 2(1) and a director disqualified under this section does not need to be ‘unfit’ (as you would have under CDDA section 6).

Interestingly, the burden of proof is much heavier for an application for a permission of the court to act as a director while disqualified (made pursuant to CDDA section 17) if the person is disqualified under s 2 of the CDDA. Successful applications are almost non-existent due to the court’s reluctance to give permission where a director has engaged in serious criminal misconduct. There is no doubt that the criminal elements of this are the reason for this reluctance.

Section 2 of the CDDA was also bolstered by the Small Business, Enterprise and Employment Act 2015 and the insertion of section 2(1A) and 2(2)(aa). These allow for the courts in the UK to bring director disqualification proceedings in relation to a person’s conduct in an overseas company (for example criminal behaviour abroad). An important expansion of the Secretary of States powers of which directors should always be aware.

Period of disqualification under section 2 of the CDDA

The minimum period of disqualification under section 2 of the CDDA is 2 years.   The maximum period is 15 years

Read the section in full

• Disqualification on conviction of indictable offence

• [Court’s power] The court may make a disqualification order against a person where he is convicted of an indictable offence (whether on indictment or summarily) in connection with the promotion, formation, management, liquidation or striking off of a company, with the receivership of a company’s property or with his being an administrative receiver of a company.

(1A) [Overseas company included] In subsection (1), “company” includes overseas company.

• [“The court”] “The court” for this purpose means–

1. any court having jurisdiction to wind up the company in relation to which the offence was committed, or

(aa) in relation to an overseas company not falling within paragraph (a), the High Court or, in Scotland, the Court of Session, or

1. the court by or before which the person is convicted of the offence, or
2. in the case of a summary conviction in England and Wales, any other magistrates’ court acting in the same local justice area; and for the purposes of this section the definition of “indictable offence” in Schedule 1 to the Interpretation Act 1978 applies for Scotland as it does for England and Wales.

• [Maximum period] The maximum period of disqualification under this section is–

1. where the disqualification order is made by a court of summary jurisdiction, 5 years, and
2. in any other case, 15 years.

Overview

Section 3 of the CDDA 1986 outlines disqualification action taken for persistent breaches of company legislation.

This section runs together with section 5 of the CDDA below, which allows the court when convicting someone for a summary company law offence, to make a disqualification order if that person has two or more similar convictions in the preceding five years.

Persistent default, as referenced in subsection (1), is often something that we see raised by the Companies House prosecution team where the director has ignored the filing instructions for annual accounts. As stated in Section 3 CDDA subsection (2), three or more defaults in the previous 5 years is considered to be persistent. Further it is established that the director has to evince a deliberate disregard of the statutory requirements. It is at this stage we often see the Companies House prosecution team seek a disqualification order against a director in the criminal courts.

Importantly, as per Section 3 CDDA subsection (3), the requirement to file documents with the registrar of companies is placed on the company itself. However, the limited liability element of this does not protect the director as the company, together with any ‘officer in default’, shall be guilty of an offence here. The company will breach the act, and the director will be then convicted.

Period of disqualification

The minimum period of disqualification under section 3 of the CDDA is 2 years. The maximum period is 5 years.

Read the section in full

Disqualification for persistent breaches of companies legislation

• [Court’s power] The court may make a disqualification order against a person where it appears to it that he has been persistently in default in relation to provisions of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies.

• [Conclusive proof of default] On an application to the court for an order to be made under this section, the fact that a person has been persistently in default in relation to such provisions as are mentioned above may (without prejudice to its proof in any other manner) be conclusively proved by showing that in the 5 years ending with the date of the application he has been adjudged guilty (whether or not on the same occasion) of three or more defaults in relation to those provisions.

• [Guilty of default under s.3(2)] A person is to be treated under subsection (2) as being adjudged guilty of a default in relation to any provision of that legislation if–

1. he is convicted (whether on indictment or summarily) of an offence consisting in a contravention of or failure to comply with that provision (whether on his own part or on the part of any company), or
2. a default order is made against him, that is to say an order under any of the following provisions–
   1. section 452 of the Companies Act 2006 (order requiring delivery of company accounts),
   2. section 456 of that Act (order requiring preparation of revised accounts),

• section 1113 of that Act (enforcement of company’s filing obligations),

1. section 41 of the Insolvency Act 1986 (enforcement of receiver’s or manager’s duty to make returns), or
2. section 170 of that Act (corresponding provision for liquidator in winding up),

in respect of any such contravention of or failure to comply with that provision (whether on his own part or on the part of any company).

(3A) [Overseas company included] In this section “company” includes overseas company.

• [“The court”] In this section “the court” means–

1. any court having jurisdiction to wind up any of the companies in relation to which the offence or other default has been or is alleged to have been committed, or
2. in relation to an overseas company not falling within paragraph (a), the High Court or, in Scotland, the Court of Session.

(4A) [“The companies legislation” in s.3] In this section “the companies legislation” means the Companies Acts and Parts 1 to 7 of the Insolvency Act 1986 (company insolvency and winding up).

• [Maximum period] The maximum period of disqualification under this section is 5 years.

Overview

CDDA Section 5 looks at director disqualification on summary conviction.

Here, as with section (3) of the CDDA above, we have the same situation except that an order under CDDA section (3) may only be made by the court which has the jurisdiction to wind up one of the companies concerned (High Court mainly). Therefore, prosecutions for failure to comply with company law regulations will usually be brought under section 5 of the Company Director Disqualification Act 1986 (summarily) and therefore the court can exercise its jurisdiction to make a disqualification order for ‘persistent default’.

Similarly, Section 5A of the CDDA permits a disqualification order to be brought in relation to a person’s conduct in relation to an overseas company. Section 5A of the CDDA 1986 broadly corresponds with section 2 of the CDDA above but relates to the disqualification of a person on summary conviction of an offence (including overseas in accordance with CDDA section 5A).

For reference, a summary conviction is one that is only triable in the magistrate’s court. In limited circumstances, such as if the matter is defended, then a disqualification matter will then be dealt with by the Crown Court.

Common types of offences leading to disqualification

Disqualification can take place for as a result of a failure to comply with a range of statutory requirements including

• Failure to file Annual Accounts – section 441 of the Companies Act 2006
• Failure to file Annual Reports – section 854 of the Companies Act 2006

How we can help

We regularly act for directors who find themselves threatened with disqualification by the Magistrates Court for failing to file documents at Companies House and / or breaching company legislation.

The head of our disqualification team is Stephen Downie – and he lives in Cardiff and is able to attend the Cardiff Magistrates court where all these cases are heard.  We often defend directors in these claims, preparing evidence and dealing with the less formal way in which Magistrates cases are dealt with.

Free Guides, Booklets & Useful links

• FWJ Tips booklet – Director Disqualification for failing to file Companies House documents
• FWJ Tips Booklet – Companies House & director disqualification
• FWJ Guide – Criminal proceedings and director disqualification
• FWJ Guide – director disqualification – Companies House magistrates claims
• FWJ Guide – Disqualification for persistent breaches of Companies Act 2006

It is also possible to find details regarding Magistrate Court sentencing guidelines on the sentencing council website. 

Read the section in full

5 Disqualification on summary conviction

• [Relevant offences] An offence counting for the purposes of this section is one of which a person is convicted (either on indictment or summarily) in consequence of a contravention of, or failure to comply with, any provision of the companies legislation requiring a return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar of companies (whether the contravention or failure is on the person’s own part or on the part of any company).

• [Court’s power] Where a person is convicted of a summary offence counting for those purposes, the court by which he is convicted (or, in England and Wales, any other magistrates’ court acting in the same local justice area) may make a disqualification order against him if the circumstances specified in the next subsection are present.

• [Circumstances in s.5(2)] Those circumstances are that, during the 5 years ending with the date of the conviction, the person has had made against him, or has been convicted of, in total not less than 3 default orders and offences counting for the purposes of this section; and those offences may include that of which he is convicted as mentioned in subsection (2) and any other offence of which he is convicted on the same occasion.

• [Definitions] For the purposes of this section–

1. the definition of “summary offence” in Schedule 1 to the Interpretation Act 1978 applies for Scotland as for England and Wales, and
2. “default order” means the same as in section 3(3)(b).

(4A) [“The companies legislation” in s.5] In this section “the companies legislation” means the Companies Acts and Parts 1 to 7 of the Insolvency Act 1986 (company insolvency and winding up).

(4B) [Overseas company included] In this section “company” includes overseas company.

• [Maximum period] The maximum period of disqualification under this section is 5 years.

5A Disqualification for certain convictions abroad

• [Application by Secretary of State] If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order under this section should be made against a person, the Secretary of State may apply to the court for such an order.

• [Court’s power to make disqualification order] The court may, on an application under subsection (1), make a disqualification order against a person who has been convicted of a relevant foreign offence.

• [“Relevant foreign offence”] A “relevant foreign offence” is an offence committed outside Great Britain–

1. in connection with–

1. the promotion, formation, management, liquidation or striking off of a company (or any similar procedure),
2. the receivership of a company’s property (or any similar procedure), or

• a person being an administrative receiver of a company (or holding a similar position), and

1. which corresponds to an indictable offence under the law of England and Wales or (as the case may be) an indictable offence under the law of Scotland.

• [Secretary of State’s acceptance of undertaking] Where it appears to the Secretary of State that, in the case of a person who has offered to give a disqualification undertaking–

1. the person has been convicted of a relevant foreign offence, and
2. it is expedient in the public interest that the Secretary of State should accept the undertaking (instead of applying, or proceeding with an application, for a disqualification order), the Secretary of State may accept the undertaking.

• [“Company”, “the court”] In this section– “company” includes an overseas company; “the court” means the High Court or, in Scotland, the Court of Session.

• [Maximum disqualification period] The maximum period of disqualification under an order under this section is 15 years.

Section 6 Overview

Section 6 of the CDDA 1986 sets out the general provisions relating to the duty of the disqualification court to disqualify unfit directors of insolvent companies.

This is the key section (or ‘flagship’ provision) of the Company Director Disqualification Act that directors often find themselves getting entangled with. Section 6 of the Company Director Disqualification Act 1986 gives the Secretary of State the ability to bring legal proceedings against a director where they consider the court will be satisfied that the person concerned was a director of an insolvent company (or it was dissolved without becoming insolvent), and the directors’ conduct makes them a ‘person unfit to be concerned in the management of a company’.

New changes – Company Dissolutions now caught

It used to be the case that only companies which became insolvent were covered by this section. However, a major new change occurred in 2021 with the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021.  This change was in response to the abuse by directors of the Bounce Back Loan scheme which was introduced following the COVID-19 pandemic. What had been happening was that a lot of directors tried to dissolve their companies without going through the correct insolvency procedures in an attempt to avoid paying back COVID-19 related bounce back loans. The new law allows the Secretary of State to pursue proceedings more easily against these directors as well – something we are seeing in practice today.

Key Points to consider under section 6 of the CDDA 1986

There is a lot of case law and commentary concerned with section 6 of the Company Director Disqualification Act 1986 and our team at Francis Wilks & Jones are happy to provide specialist advice should you require.

Some of the key points directors might consider taking into account when dealing with this section

• The definition of director in section 6 of the CDDA includes a shadow director. In other words, you do not need to be officially appointed as a director (a de jure director) in order to fall foul of these provisions.
• A director further includes a Member, and a shadow Member, of an LLP.
• There is no territorial restriction (with a Scottish exception as they have their own procedure). The director misconduct can occur both inside and outside of the jurisdiction of England & Wales.
• While an application to make a director disqualified has to be made within three years of the company going insolvent, there is no prior conduct time limit. The enquiry as to the director’s conduct can go back as far as necessary.
• Conduct of a director’s other companies can be a relevant consideration (either positively or negatively).

Director’s conduct and unfitness to act – what does it actually mean?

At any court hearing, a director disqualification case under section 6 of the CDDA 1986 must determine whether the complaints about the conduct of the director concerned are sufficient to render him / her ‘unfit’ to be a director for a period of time moving forwards.

It is important to understand that not all types of misconduct lead to a finding of unfitness. Only misconduct of sufficient seriousness leads to a finding of unfitness – and thus a disqualification order being made.

There is a wide range of factors which a court will take into account when making this decision. Dishonesty by a director is not a prerequisite to a finding of unfitness. A director can be equally unfit by virtue of his incompetence or his negligent conduct as a director although dishonesty is likely to lead to a longer period of disqualification being ordered. This must all, additionally, be considered within the lens of the public interest. The Secretary of State will only come to their determination that disqualification is needed if the behaviour of the director falls below such a standard that it is in the public interest, they be prohibited from taking that office again.

Below are some examples of director conduct which can lead to a finding of unfitness under section 6 of CDDA 1986:

• Conduct that seeks to deprive creditors of assets
• Continuing to trade to the detriment of creditors when a company is insolvent
• Fraudulent behaviour
• Failure to keep proper accounting records
• Failure to prepare and file accounts or make returns to Companies House
• Failure to submit tax returns or fairly pay the tax due
• Failure to comply with other regulatory requirements
• Failure to co-operate with the official receiver and/or insolvency practitioner.

How we can help

We have been advising directors on this area of the law since 2002. We have dealt with every conceivable scenario when it comes to the question of misconduct and unfitness. We don’t just read the law– we help make it and have a number of reported cases dealing with misconduct and director defence. One example if the case of Re Integra Construction Ltd, Secretary of State for Business Innovation & Skills v Chalkley which became the leading case about how the Secretary of State should be specific in the allegations it makes against directors rather than simply invite the court to make a decision based on an overall evaluation of the directors’ conduct.

We have written lots of helpful guidance on the specific allegations of misconduct which can be pleaded by the Secretary of State – and how best to defend directors from these claims.  For further read any of the following guides or links below

Free Guides, Booklets & Useful links

What constitutes unfit conduct by directors? 21 commonly asked questions

Director disqualification and bounce back loans

Director disqualification for excessive pay or dividends  

Director disqualification for failure to file statutory information and company documents

Director Disqualification for not paying tax

Directors’ duties and liabilities explained

Director Disqualification for misappropriation of company assets 

Director Disqualification – failing to file Company House documents  

Wrongful and fraudulent trading – 10 FAQ’s

Director disqualification for dishonest conduct

Abuse of Directors loan account

Acting contrary to the public interest

Director disqualification for non-payment of HMRC and other creditors

Director Misconduct explained

Director disqualification for inappropriate delegation of responsibilities

Disqualification for persistent breaches of the Companies Act 2006

Director Disqualification offences – continuation of a failed business model 

Director disqualification for using phoenix companies and reusing company names 

Director disqualification for inactivity or failure to act

FWJ Tips booklets

What is misconduct in director disqualification claims? 

Dividends, excess pay and director disqualification

Director’s fiduciary duties explained

Read the section in full

6 Duty of court to disqualify unfit directors

• [Court’s duty] The court shall make a disqualification order against a person in any case where, on an application under this section,

1. the court is satisfied–

1. 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
2. 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

1. 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.

(1A) [Conduct as director] In this section references to a person’s conduct as a director of any company or overseas company include, where that company or overseas company has become insolvent, references to that person’s conduct in relation to any matter connected with or arising out of the insolvency.

• [Interpretation] For the purposes of this section, a company becomes insolvent if–

1. the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,
2. the company enters administration,
3. an administrative receiver of the company is appointed.

(2A) [When overseas company becomes insolvent] For the purposes of this section, an overseas company becomes insolvent if the company enters into insolvency proceedings of any description (including interim proceedings) in any jurisdiction.

• [“The court”] In this section and section 7(2), “the court” means–

1. where the company in question is being or has been wound up by the court, that court,
2. where the company in question is being or has been wound up voluntarily, any court which has or (as the case may be) had jurisdiction to wind it up,
3. where neither paragraph (a) nor (b) applies but an administrator or administrative receiver has at any time been appointed in respect of the company in question, any court which has jurisdiction to wind it up.
4. where the company in question has been dissolved without becoming insolvent, a court which at the time it was dissolved had jurisdiction to wind it up.

(3A) [Application of Insolvency Act 1986 ss.117 and 120] Sections 117 and 120 of the Insolvency Act 1986 (jurisdiction) shall apply for the purposes of subsection (3) as if the references in the definitions of “registered office” to the presentation of the petition for winding up were references–

1. in a case within paragraph (b) of that subsection, to the passing of the resolution for voluntary winding up.
2. in a case within paragraph (c) of that subsection, to the appointment of the administrator or (as the case may be) administrative receiver,

(3B) [Wrong court] Nothing in subsection (3) invalidates any proceedings by reason of their being taken in the wrong court; and proceedings–

1. for or in connection with a disqualification order under this section, or
2. in connection with a disqualification undertaking accepted under section 7, may be retained in the court in which the proceedings were commenced, although it may not be the court in which they ought to have been commenced.

(3C) [“Director”] In this section and section 7, “director” includes a shadow director.

• [Minimum, maximum periods] Under this section the minimum period of disqualification is 2 years, and the maximum period is 15 years.

Section 7 Overview

Section 7 of the CDDA 1986 discusses general provisions relating to disqualification orders, disqualification undertakings and disqualification reporting provisions.

Procedure

Section 7 of the CDDA is procedural and sets out the method and process for other sections of the Company Director Disqualification Act 1986.

CDDA section 7 sets out:

• who may make an application (either the Secretary of State or, in cases of compulsory liquidation, the Official Receiver),
• how long the applicant has to bring the claim (3 years from insolvency or dissolution of the company), and
• that the claimant may accept a disqualification undertaking (if it is in the public interest to do so).

On a procedural basis, when the claimant issues the director disqualification application in the court, the first thing to happen is the listing of an initial 15-minute hearing of the matter. This hearing can go one of two ways. Should the director wish to defend his / her position, they (or their representatives) can seek “directions” (procedural steps in the ongoing claim) in this 15 minute hearing (or before it), normally relating to service of witness evidence in the case (eg for Claimant and the Defendant). This is a form of case management hearing and if any other timetabling can be done at this hearing, it will be.

Evidence

Evidence in director disqualification claims is done by way of affidavit. This is written statement (a bit like a witness statement) that is confirmed by an oath of affirmation. In a normal case, the Insolvency Service investigator will supply one affidavit and include an exhibit of documentary evidence to support it. In more complex cases, other accusing parties will also supply affidavits. As above, the evidence the defendant may wish to supply in response will also need to be in affidavit form.

Engagement with the Process

However, should the defendant not respond to the proceedings up until the point of this first, initial hearing, then, the court may impose a disqualification order on a summary basis (ie at the 15 minute hearing itself). This can only be done if the disqualification period sought by the Secretary of State is below 5 years. Should the judge believe a longer period be needed, then the matter will be adjourned / postponed to a further hearing.

Importantly, therefore, it is key that a director take immediate advice if they become aware of disqualification proceedings issued against them and the listing of a hearing date. There will be an initial panic at the proposed deadlines for the submission of evidence (as they can be quite short). However, such deadlines can all be extended and postponed by your instructed representatives by their engaging with the claimant in the proceedings. Getting proper director disqualification lawyers involved early on is vital to your prospects of success.

Disqualification Report

Finally, and importantly, are the provisions set out in section 7A of the Company Director Disqualification Act 1986 (also replicated below). These impose an obligation on the Official Receiver, or any relevant liquidator, administrator, or administrative receiver of an insolvent company, to submit a report to the Secretary of State on the conduct of any director.

Indeed, this is the first step of any investigation against a director and is how the Secretary of State will substantively discover the conduct of the relevant director and then consider whether to commence an investigation. Therefore, it is important to be mindful that if you do not deliver the appropriate documentation to the liquidator (or administrator as it may be) such conduct may result in an unfavourable report being filed. Once the Insolvency Service commences an investigation, it can be difficult to get them to stop. Therefore, at all times, it is wise to engage with the process and be as receptive to requests for information and documentation as possible.

How we can help

We have helped defend many director disqualification claims and are fully versed in all the court procedure and how best to use our experience and tactics to maximise success for a director. Key to this is getting a proper timetable in place, not being bullied in to agreeing to do things before you are ready, ensuring proper access to company books and records to properly prepare your claim and if needed, asking for formal clarification of the Claimant’s case – as they are often poorly drafted and the allegations against the director unclear.

We can also advise on all aspects of disqualification undertakings – whether they should be accepted, when they should be accepted and for what period. Getting this right can have huge implications for an individual facing a director disqualification claim.

Free Guides, Booklets & Useful links

• Legal costs and funding your defence
• Director disqualification court hearings
• Disqualification undertakings – all you need to know
• Benefit and purpose of a disqualification undertaking
• Disqualification and compensation undertaking 
• Disqualification undertakings
• Director disqualification undertakings explained
• Defending legal proceedings
• Risk and consequence of a disqualification undertaking
• Disqualification undertaking offer and risks
• Helping a director to remain acting as a director of 17 separate companies despite a disqualification undertaking

Read the section in full

7 Disqualification orders under section 6: applications and acceptance of undertakings

• [Application by Secretary of State, official receiver] If it appears to the Secretary of State that it is expedient in the public interest that a disqualification order under section 6 should be made against any person, an application for the making of such an order against that person may be made–

1. by the Secretary of State, or
2. if the Secretary of State so directs in the case of a person who is or has been a director of a company which is being or has been wound up by the court in England and Wales, by the official receiver.

• [Time for application] Except with the leave of the court, an application for the making under that section of a disqualification order against any person shall not be made after the end of the period of 3 years beginning with–

1. in a case where the person is or has been a director of a company which has become insolvent, the day on which the company became insolvent, or
2. in a case where the person has been a director of a company which has been dissolved without becoming insolvent, the day on which the company was dissolved.

(2A) [Acceptance of undertaking where s.6(1) satisfied] If it appears to the Secretary of State that the conditions mentioned in section 6(1) are satisfied as respects any person who has offered to give him a disqualification undertaking, he may accept the undertaking if it appears to him that it is expedient in the public interest that he should do so (instead of applying, or proceeding with an application, for a disqualification order).

• [Deleted]

• [Extra information etc.] The Secretary of State or the official receiver may require any person–

1. to furnish him with such information with respect to that person’s or another person’s conduct as a director of a company which has at any time become insolvent or been dissolved without becoming insolvent (whether while the person was a director or subsequently), and
2. to produce and permit inspection of such books, papers and other records as are considered by the Secretary of State or (as the case may be) the official receiver to be relevant to that person’s or another person’s conduct as such a director, as the Secretary of State or the official receiver may reasonably require for the purpose of determining whether to exercise, or of exercising, any function of this under this section.

• [Section 6(1A), (2) applies] Subsections (1A) and (2) of section 6 apply for the purposes of this section as they apply for the purposes of that section.

7A Office-holder’s report on conduct of directors

• [Duty of office-holder to prepare conduct report] The office-holder in respect of a company which is insolvent must prepare a report (a “conduct report”) about the conduct of each person who was a director of the company–

1. on the insolvency date, or
2. at any time during the period of 3 years ending with that date.

• [When company insolvent] For the purposes of this section a company is insolvent if–

1. the company is in liquidation and at the time it went into liquidation its assets were insufficient for the payment of its debts and other liabilities and the expenses of the winding up,
2. the company has entered administration, or
3. an administrative receiver of the company has been appointed; and subsection (1A) of section 6 applies for the purposes of this section as it applies for the purpose of that section.

• [Conduct report] A conduct report must, in relation to each person, describe any conduct of the person which may assist the Secretary of State in deciding whether to exercise the power under section 7(1) or (2A) in relation to the person.

• [Period to send report to Secretary of State] The office-holder must send the conduct report to the Secretary of State before the end of–

1. the period of 3 months beginning with the insolvency date, or
2. such other longer period as the Secretary of State considers appropriate in the particular circumstances.

• [Duty to send new information] If new information comes to the attention of an office-holder, the office-holder must send that information to the Secretary of State as soon as reasonably practicable.

• [“New information”] “New information” is information which an office-holder considers should have been included in a conduct report prepared in relation to the company, or would have been so included had it been available before the report was sent.

• [Where more than one office-holder] If there is more than one office-holder in respect of a company at any particular time (because the company is insolvent by virtue of falling within more than one paragraph of subsection (2) at that time), subsection (1) applies only to the first of the office-holders to be appointed.

• [Where company insolvent at different times] In the case of a company which is at different times insolvent by virtue of falling within one or more different paragraphs of subsection (2)–

1. the references in subsection (1) to the insolvency date are to be read as references to the first such date during the period in which the company is insolvent, and
2. subsection (1) does not apply to an office-holder if at any time during the period in which the company is insolvent a conduct report has already been prepared and sent to the Secretary of State.

• [The “office-holder”] The “office-holder” in respect of a company which is insolvent is–

1. in the case of a company being wound up by the court in England and Wales, the official receiver;
2. in the case of a company being wound up otherwise, the liquidator;
3. in the case of a company in administration, the administrator;
4. in the case of a company of which there is an administrative receiver, the receiver.

• [The “insolvency date”] The “insolvency date”–
  1. in the case of a company being wound up by the court, means the date on which the court makes the winding up order (see section 125 of the Insolvency Act 1986);
  2. in the case of a company being wound up by way of a members’ voluntary winding up, means the date on which the liquidator forms the opinion that the company will be unable to pay its debts in full (together with interest at the official rate) within the period stated in the directors’ declaration of solvency under section 89 of the Insolvency Act 1986;
  3. in the case of a company being wound up by way of a creditors’ voluntary winding up where no such declaration under section 89 of that Act has been made, means the date of the passing of the resolution for voluntary winding up;
  4. in the case of a company which has entered administration, means the date the company did so;
  5. in the case of a company in respect of which an administrative receiver has been appointed, means the date of that appointment.

• [Replacement administrative receiver ignored for s.7A(10)(e)] For the purposes of subsection (10)(e), any appointment of an administrative receiver to replace an administrative receiver who has died or vacated office pursuant to section 45 of the Insolvency Act 1986 is to be ignored.

• [“Court”, “director”] In this section– “court” has the same meaning as in section 6; “director” includes a shadow director.

Overview

Set out below in full is section 8 of the Company Director Disqualification Act 1986 is written to cover the general provisions relating to director disqualification after investigation of a company.

CDDA section 8 allows for a disqualification order to be made, if its expedient in the public interest, against a director or shadow director of any company. This is an alternative route to CDDA section 6 above. There are some important differences here (as opposed to section 6 of the CDDA):

• There is no insolvency or dissolution requirement. The Secretary of State could just act on the basis of some information received in relation to a director;
• If, pursuant to a CDDA section 6 claim, the court makes a finding of unfitness (of the director), then the court must make an order for disqualification of a minimum period of two years. This is not the case here and there is a discretion as to whether the court has to order disqualification.
  • This element of uncertainty in the court decision, together with the reason that most misconduct arises out of insolvency (re section 6), is why CDDA section 6 claims are much more commonly brought by the secretary of state (/official receiver).
• The official receiver has no standing to apply under this section; and
• There are no limitation periods to bringing the claims.

The SBEEA 2015 introduced sections 8ZA – 8ZE. These are not replicated below but they introduced a new ground for the making of a disqualification order or the acceptance of a disqualification undertaking that is ‘directing or instructing a director who has been disqualified on the grounds of unfitness’. This is a shadow director type of relationship that the law is seeking to codified and incorporate into statute. The exact circumstances when this type of misconduct arises is likely quite rare, however.

Read the section in full

8 Disqualification of director on finding of unfitness

• [Application by Secretary of State] 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.

(1A) [Deleted]

• [Court’s power] 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.

(2A) [Acceptance of undertaking] Where it appears to the Secretary of State that, in the case of a person who has offered to give him a disqualification undertaking–

(a) the conduct of the person in relation to a company of which the person is or has been a director or shadow director (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, and

(b) it is expedient in the public interest that he should accept the undertaking (instead of applying, or proceeding with an application, for a disqualification order), he may accept the undertaking.

(2B) [Application of s.6(1A) conduct as director] Subsection (1A) of section 6 applies for the purposes of this section as it applies for the purposes of that section.

• [“The court”] In this section “the court” means the High Court or, in Scotland, the Court of Session.

• [Maximum period] The maximum period of disqualification under this section is 15 years.

Section 8a Overview

Where CDDA Section 8A differs, is where it discusses variation, relating to the reduction in director disqualification periods.

CDDA 1986 Section 8A is an interesting section and one which seeks to give some type of appeal or review to disqualified directors who accepted a disqualification undertaking (otherwise the disqualification regime may fall foul of Human Rights legislation. Essentially, this section allows a disqualified director to make an application to the courts to (1) reduce the period for which the undertaking is to be in force; or (2) provide for it to cease to be in force.

Only the disqualified director may make this application and they should be safe in the knowledge that there is no power to increase the period (should the hearing go the wrong way), it can only be varied in the director’s favour, or terminated altogether. The court’s jurisdiction to do so is unfettered, but it must be clarified that the disqualification period can only be terminated in a circumstance where, for example, a 12-year period is reduced to 3 years and the director has already served 5 years (AKA two years over the reduced period). The court has no jurisdiction to reduce the period to zero years and to effectively overrule the previous decision made in the initial disqualification proceedings.

All sorts of arguments have been presented by directors disqualified by undertaking and who now want to reduce the period they are subject to. Indeed, for example, one may not have taken legal advice initially and now seek to vary the undertaking on the basis that, had they have taken advice they should never have been disqualified. Only in very exceptional circumstances would such an argument be persuasive, and generally, it will not be persuasive.

Finally, it is worth noting, this section is one of two routes available to a director who has been disqualified and wants to do something to lessen the impact on their life. The alternative is an application pursuant to section 17 of the CDDA and is discussed below. Or read more about section 17 applications to remain a director despite a disqualification order on our other brilliant web pages. 

How we can help

We have previously advised directors on reducing their period of undertaking and have progressed a CDDA Section 8A case all the way to a full hearing. They are unusual applications and we are one of very few firms to have made such an application.  If you are interested in discussing whether you are suitable for a Section 8A Company Director Disqualification Act 1986 application – we would be more than happy to review the merits of your claim.

Free Guides, Booklets & Useful links

• Applying to reduce a disqualification undertaking period
• Reducing the period of a director disqualification ban – 14 common questions answered
• Section 8A of the Company Director Disqualification Act 1986
• Reducing a period of disqualification

Read the section in full

8A Variation etc. of disqualification undertaking

• [Reduction, etc. of undertaking] The court may, on the application of a person who is subject to a disqualification undertaking–

1. reduce the period for which the undertaking is to be in force, or
2. provide for it to cease to be in force.

• [Duty of Secretary of State to appear] On the hearing of an application under subsection (1), the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses

(2A) [Non-application of s.8(2)] Subsection (2) does not apply to an application in the case of an undertaking given under section 9B, and in such a case on the hearing of the application whichever of the Competition and Markets Authority or a specified regulator (within the meaning of section 9E) accepted the undertaking–

1. must appear and call the attention of the court to any matters which appear to it or him (as the case may be) to be relevant;
2. may give evidence or call witnesses.

• [“The court”] In this section “the court”–

(za) in the case of an undertaking given under section 8ZC has the same meaning as in section 8ZA;

(zb) in the case of an undertaking given under section 8ZE means the High Court or, in Scotland, the Court of Session;

1. in the case of an undertaking given under section 9B means the High Court or (in Scotland) the Court of Session;

1. in any other case has the same meaning as in section 5A(5), 7(2) or 8 (as the case may be).

Overview

Set out below in full is section 9A of the Company Director Disqualification Act 1986 setting out the general provisions relating to director disqualification competition orders.

This section, up to section 9E, was inserted into the CDDA by the Enterprise Act 2002. The regime is one of competition disqualification orders and permits the court to make a disqualification order against a director who has committed a breach of competition law. The salient determination, as always, is whether the director’s conduct makes the unfit to be concerned in the management of a company. In parallel with section 6 of the CDDA 1986, the obligation to make an order, if unfitness is determined, is mandatory.

As opposed to section 6 of the CDDA, there is also no minimum period of disqualification under section 9A of the Director Disqualification Act 1986 (2 years in section 6), the question of solvency is not relevant, and no reference may be made to schedule 1 of the CDDA. Schedule 1 of the CDDA 1986 is where the factors detailing matters of unfitness for section 6 of the Company Director Disqualification Act are set out.

Competition undertakings, by virtue of section 9B of the Company Director Disqualification Act, can be accepted by the Competition and Markets Authority. As with section 6 Company Director Disqualification Act claims, undertakings are to all intents and purposes the same as orders.

Read the section in full

9A Competition disqualification order

• [Court’s power] The court must make a disqualification order against a person if the following two conditions are satisfied in relation to him.

• [First condition] The first condition is that an undertaking which is a company of which he is a director commits a breach of competition law.

• [Second condition] The second condition is that the court considers that his conduct as a director makes him unfit to be concerned in the management of a company.

• [Breach of competition law] An undertaking commits a breach of competition law if it engages in conduct which infringes either of the following–

1. the Chapter 1 prohibition (within the meaning of the Competition Act 1998) (prohibition on agreements, etc. preventing, restricting or distorting competition);
2. the Chapter 2 prohibition (within the meaning of that Act) (prohibition on abuse of a dominant position);

(c), (d) [Omitted]

• [Decision as to unfitness] For the purpose of deciding under subsection (3) whether a person is unfit to be concerned in the management of a company the court–

1. must have regard to whether subsection (6) applies to him;
2. may have regard to his conduct as a director of a company in connection with any other breach of competition law;
3. must not have regard to the matters mentioned in Schedule 1.

• [Application of s.9A(6)] This subsection applies to a person if as a director of the company–

1. his conduct contributed to the breach of competition law mentioned in subsection (2);
2. his conduct did not contribute to the breach but he had reasonable grounds to suspect that the conduct of the undertaking constituted the breach and he took no steps to prevent it;
3. he did not know but ought to have known that the conduct of the undertaking constituted the breach.

• [Knowledge of breach immaterial] For the purposes of subsection (6)(a) it is immaterial whether the person knew that the conduct of the undertaking constituted the breach.

• [Conduct of an undertaking] For the purposes of subsection (4)(a) references to the conduct of an undertaking are references to its conduct taken with the conduct of one or more other undertakings.

• [Maximum disqualification period] The maximum period of disqualification under this section is 15 years.

• [Who may make application] An application under this section for a disqualification order may be made by the Competition and Markets Authority or by a specified regulator.

• [Application of Competition Act 1998 s.60A] Section 60A of the Competition Act 1998 (certain principles etc to be considered or applied from IP completion day) applies in relation to any question arising by virtue of subsection (4)(a) or (b) above as it applies in relation to any question arising under Part 1 of that Act.

Overview

Set out below in full is section 11 of the Company Director Disqualification Act 1986 setting out the general provisions relating to undischarged bankrupts.

A ban under CDDA section 11 is imposed on an undischarged bankrupt (or a person subject to a bankruptcy restriction order or bankruptcy restriction undertaking) from acting as a director of a company or director or indirectly being concerned in the promotion, formation, or management of a company. This is broadly analogous to a disqualification order.

If a bankrupt breaches this section and acts as a director, or becomes concerned in management, then this is an absolute offence with no defence of genuine belief that he was, say, discharged from bankruptcy. He will be criminally liable.  There is also the ability for anyone to complain about a bankrupt person to the governments report line.

Free Guides, Booklets & Useful links 

• Bounce Back Loans and Bankruptcy Restriction Undertakings & Orders
• Bankruptcy restriction order
• Paying off or ending your bankruptcy
• Bankruptcy and your home
• Alternatives to Bankruptcy

As a practice we also have a specialised Bankruptcy team who can help you with any bankruptcy related matter or claim.

Read the section in full

11 Undischarged bankrupts 

• [Offence] It is an offence for a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the court, at a time when any of the circumstances mentioned in subsection (2) apply to the person.

• [Circumstances for offence] The circumstances are–

1. the person is an undischarged bankrupt – 
2. in England and Wales or Scotland, or
3. in Northern Ireland,
4. a bankruptcy restrictions order or undertaking is in force in respect of the person under–

1. the Bankruptcy (Scotland) Act 1985 or 2016 or the Insolvency Act 1986, or
2. the Insolvency (Northern Ireland) Order 1989,

1. a debt relief restrictions order or undertaking is in force in respect of the person under–

1. the Insolvency Act 1986, or
2. the Insolvency (Northern Ireland) Order 1989,

1. a moratorium period under a debt relief order applies in relation to the person under–
   1. the Insolvency Act 1986, or
   2. the Insolvency (Northern Ireland) Order 1989.

(2A) [“The court”] In subsection (1) “the court” means–

1. for the purposes of subsection (2)(a)(i)–

1. the court by which the bankruptcy order was made or (if the order was not made by a court) the court to which a debtor may appeal against a refusal to make a bankruptcy order, or
2. in Scotland, the court by which sequestration of the person’s estate was awarded or, if awarded other than by the court, the court which would have jurisdiction in respect of sequestration of the person’s estate,

1. for the purposes of subsection (2)(b)(i)–

1. the court which made the order,
2. in Scotland, if the order has been made other than by the court, the court to which the person may appeal against the order, or

• the court to which the person may make an application for annulment of the undertaking,

1. for the purposes of subsection (2)(c)(i)–

1. the court which made the order, or
2. the court to which the person may make an application for annulment of the undertaking,

1. for the purposes of subsection (2)(d)(i), the court to which the person would make an application under section 251M(1) of the Insolvency Act 1986 (if the person were dissatisfied as mentioned there),

1. for the purposes of paragraphs (a)(ii), (b)(ii), (c)(ii) and (d)(ii) of subsection (2), the High Court of Northern Ireland.

• [Requirements for leave of court] In England and Wales, the leave of the court shall not be given unless notice of intention to apply for it has been served on the official receiver; and it is the latter’s duty, if he is of opinion that it is contrary to the public interest that the application should be granted, to attend on the hearing of the application and oppose it.

• [“Company”] In this section “company”

Overview

Section 12A of the Company Director Disqualification Act 1986 covers the general provisions relating to director disqualification orders in Northern Ireland.

A disqualification order made by a court in Northern Ireland will have the same effect as one made by a court in the rest of the United Kingdom, and contravention will have the same civil and criminal liabilities and penalties.

How we can help

The procedure for defending a claim in Northern Ireland is exactly the same as in England & Wales.  As such, we have acted for directors facing claims in Northern Ireland. The only difference is that we would need to use local agents or barristers to attend any hearings in Northern Ireland – which isn’t an issue as we have good contacts there.  Otherwise – our experts can prepare the witness evidence or help defend the director disqualification claim  in the normal way.

Read the section in full

12A Northern Irish disqualification orders

A person subject to a disqualification order under the Company Directors Disqualification (Northern Ireland) Order 2002–

1. 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 High Court of Northern Ireland, and
2. shall not act as an insolvency practitioner.

Overview

Section 13 of the Company Director Disqualification Act is the section relates to criminal convictions, and where these can impact director disqualification proceedings.

Corporate fraud, or indeed any fraudulent transaction when dealing with another’s money (whether that be an individual, company or financial institution), can result in criminal proceedings being brought against the wrongdoer. Criminal proceedings for fraud and similar crimes serve to prosecute directors of companies liable for such wrongs for what is essentially theft – whether that be promising something which the company/its directors had no intention of delivering or whether that is a promised investment return which was never likely to delivered; where such crimes exist, and the Crown Prosecution Service issue a summons to prosecute the directors of that company, then the court may additionally decide to disqualify any such guilty directors.

Disqualification breaches

Where a director is disqualified from acting as a director, or in the “promotion, formation or management” of a company, then it is misconduct to go on and ignore this prohibition and act in breach of a disqualification order or a disqualification undertaking. Where a company is placed into insolvency, even where no evidence of misconduct exists then an individual (who was previously disqualified) may be disqualified again (and for a much longer period) for acting whilst disqualified. We discuss these issues, and where such misconduct arises from an individual acting as a shadow or de facto director, in more detail here.

Issues of concern when facing disqualification

Where an individual faces the prospect of being disqualified again for acting in breach of his/her previous disqualification, this misconduct will be considered very serious justifying a top bracket disqualification period of between 10 – 15 years. In such circumstances, it may be the case that the individual targeted has concerns about the costs of legal proceedings or wishes to dispose of the potential disqualification claim for other reasons by offering a disqualification undertaking.

However, by agreeing to be disqualified as a director on the basis of such allegations of misconduct then that individual faces the risk of being liable for prosecution, particularly as the evidential threshold in the disqualification proceedings is lower (meaning a successful prosecution may be inevitable where the evidence was sufficient to obtain a disqualification order or persuade the director to be disqualified in civil proceedings).

Prosecution under Section 13 Company Directors Disqualification Act 1986

This is a specific statutory criminal penalty under Section 13 of the CDDA 1986 which provides that an individual may be so liable to be prosecuted in the following circumstances:

• s/he has acted in contravention of a disqualification order or a disqualification undertaking;
• s/he has acted as a director whilst an undischarged bankrupt;
• s/he has acted as a director whilst not paying a county court administration order.

As such proceedings are criminal proceedings, the evidential requirements for the prosecution and the defence differ to that of civil proceedings – there is a requirement for the prosecution to prove their case more strongly. As a result, if the claim in the civil director disqualification proceedings is contested it is conceivable that the same case brought by the Insolvency Service may have difficulty reaching the evidential threshold required for criminal proceedings.

If you wish to be directed to a criminal solicitor capable of dealing with any prosecution you face, please contact us and we can recommend a suitable firm.

Criminal penalty

If a director is subject to criminal proceedings brought under section 13 of the Company Directors Disqualification Act 1986, then the prosecution may be brought in the Magistrates court (referred to as “a summary conviction”) or in the Crown court (referred to as “an indictable conviction”). The court in which the prosecution is brought will be determined by the severity of the offence. The criminal penalty, if the individual is found guilty, will be a custodial sentence in accordance with the following:

• For a prosecution in the Magistrates court, imprisonment up to 6 months; or
• For a prosecution in the Crown court, imprisonment up to 2 years.

In addition to the above custodial sentences, an individual subject to prosecution may also be liable for a fine.

Free Guides, Booklets & Useful links 

• Section 13 Criminal proceedings – CDDA 1986
• Criminal proceedings and director disqualification
• Breaching a disqualification order
• Acting as a director whilst disqualified
• What are the penalties for director disqualification?

Read the section in full

13 Criminal penalties

If a person acts in contravention of a disqualification order or disqualification undertaking or in contravention of section 12(2), 12A or 12B, or is guilty of an offence under section 11, he is liable–

1. on conviction on indictment, to imprisonment for not more than 2 years or a fine or both; and
2. on summary conviction, to imprisonment for not more than 6 months or a fine not exceeding the statutory maximum, or both.

Overview

Section 14 of the Company Director Disqualification Act 1986 reviews the general provisions relating to director disqualification offences by corporate bodies.

This is a standard provision providing for offences by a body corporate and its directors or managers. A body corporate includes a company that is incorporated elsewhere than in Great Britain but excludes a Scottish firm or a corporation sole. That latter is an individual person who represents an official position which has a single separate legal entity. Easy examples of this are bishops, vicars, or mayors.

This section relates to section 12A or 12B, which is the Northern Ireland element of disqualification.

Read the section in full

14 Offences by body corporate 

• [Offence re officer] 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 or 12B, 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.

• [Where managers are members] 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.

Overview

Section 15 of the Company Director Disqualification Act 1986 outlines the general provisions relating to personal liability for company’s debts where a person acts while disqualified.

Where an individual is disqualified from acting as a director then an added remedy exists for creditors of the company (and indeed the company itself) against the director acting in breach of his/her disqualification. This personal liability for the creditor’s debts is frequently overlooked by creditors but is a claim that can be made against any director who is in breach of their disqualification (a fact easily available from Companies House) regardless of whether a company is trading or has been placed into insolvency proceedings.

Who is liable under CDDA section 15?

Generally, under Section 15 of the CDDA 1986, all directors will be liable for “relevant debts” of a company in the following circumstances:

• S/he has acted in contravention of a disqualification order or a disqualification undertaking.
• S/he has acted as a director whilst an undischarged bankrupt.
• S/he has acted as a director whilst not paying a county court Administration order.
• S/he has acted on instructions provided by a disqualified director.
• S/he has acted on instructions provided by an undischarged bankrupt.

As can be seen from these last points, a director need not have been disqualified but – where they act on instructions of a director who is disqualified (and who is acting as a shadow director) – that appointed director may become personally liable for such “relevant debts” of creditors.

It is often the case that a disqualified director arranges for a spouse or another family member to take appointment as a director, but the disqualified director otherwise continue to run the company. In these circumstances both the disqualified director and those appointed at Companies House or otherwise acting as a director (or even in the company’s management) face the risk of being made personally liable for the debts of a company.

Insolvency of company

The statutory provisions do not require the current company (from which such “relevant debts” may be outstanding) to be in any form of insolvency proceedings. It is sufficient for a disqualified director to be acting as director (or instructing its directors) to support such a claim. However, in reality this is only relevant where the company is refusing to pay or appears likely to be entering into insolvency proceedings.

Extent of Liability

The director(s) liable for a creditor’s debts under this statutory provision will be personally liable for all of the company’s outstanding debts which were incurred whilst the prohibited activities occurred. So, where a director is disqualified, none of the debts arising prior can be claimed under this provision.

Otherwise, in respect of debts occurring whilst the prohibited activities occurred, where the company has paid creditor debts then it is arguable that the company may have claim against the director for contribution towards these trading costs. In addition to such sums claimed, a director will also be liable for the legal costs of such proceedings, if issued at court.

Who can claim for relevant debts?

This claim is a remedy for creditors. Whilst the grounds for such a claim will refer to a company’s “relevant debts”, it will only be those creditors who bring such proceedings which will be considered (and so not all of the company’s debts will fall within such a claim).

As stated above, it is only those debts arising when the prohibited action occurred (i.e. when the disqualified director was either acting as director of a company, in its management or instructing directors in the management of the company) that may be subject to such a claim.

Directors of insolvent companies often face claims by the company’s liquidator. We discuss liquidator claims generally here. However, a liquidator may seek to bring such a claim for the company’s relevant debts under this provision. This is generally not available to the liquidator in most circumstances, but a liquidator can issue proceedings against a director where the company has paid (or part paid) any part of the “relevant debts” for which that director would otherwise be liable to pay under this section.

How we can help

Our team often defends directors who face personal claims after a company has been made insolvent. Claims by liquidators can cover a wide range of issues including trading whilst insolvent, misfeasance and transfers at an undervalue.  In terms of director disqualification, we can help defend personal claims arising from allegations of acting in breach of a director disqualification order

Free Guides, Booklets & Useful links 

• Personal liability of directors
• Section 15 personal liability for company debts

• Misfeasance claims against directors
• Director disqualification and bounce back loans
• Defending undervalue claims by a liquidator
• Directors’ duties and liabilities
• Wrongful and fraudulent trading – 10 FAQ’s

Read the section in full

15 Personal liability for company’s debts where person acts while disqualified

• [Personal liability] A person is personally responsible for all the relevant debts of a company if at any time–

1. in contravention of a disqualification order or disqualification undertaking or in contravention of section 11, 12A or 12B of this Act he is involved in the management of the company, or
2. 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–

1. 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
2. to be an undischarged bankrupt.

• [Joint and several liability] 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.

• [Relevant debts of company] For the purposes of this section the relevant debts of a company are–

1. 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
2. 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.

• [Person involved in management] 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.

• [Presumption] 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–

1. 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
2. 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.

15A Compensation orders and undertakings

• [Power of court to make compensation order] The court may make a compensation order against a person on the application of the Secretary of State if it is satisfied that the conditions mentioned in subsection (3) are met.

• [Secretary of State’s power to accept compensation undertaking] If it appears to the Secretary of State that the conditions mentioned in subsection (3) are met in respect of a person who has offered to give the Secretary of State a compensation undertaking, the Secretary of State may accept the undertaking instead of applying, or proceeding with an application, for a compensation order.

• [Conditions for s.15A(1), (2)] The conditions are that–

1. the person is subject to a disqualification order or disqualification undertaking under this Act, and
2. conduct for which the person is subject to the order or undertaking has caused loss to one or more creditors of an insolvent company or a company which has been dissolved without becoming insolvent, of which the person has at any time been a director.

• [“Insolvent company”] An “insolvent company” is a company that is or has been insolvent and a company becomes insolvent if–

1. the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,
2. the company enters administration, or
3. an administrative receiver of the company is appointed.

• [Time for application for compensation order] The Secretary of State may apply for a compensation order at any time before the end of the period of two years beginning with the date on which the disqualification order referred to in paragraph (a) of subsection (3) was made, or the disqualification undertaking referred to in that paragraph was accepted.

• [Conduct in s.15A(3)(b)] In the case of a person subject to a disqualification order under section 8ZA or 8ZD, or a disqualification undertaking under section 8ZC or 8ZE, the reference in subsection (3)(b) to conduct is a reference to the conduct of the main transgressor in relation to which the person has exercised the requisite amount of influence.

• [“The court”] In this section and sections 15B and 15C “the court” means–

1. in a case where a disqualification order has been made, the court that made the order,
2. in any other case, the High Court or, in Scotland, the Court of Session.

Overview

Section 15A of the CDDA 1986 was introduced into the Company Director Disqualification Act 1986 via a provision from the Small Business Enterprise & Employment Act 2015. The provision empowers the Secretary of State to, while seeking a disqualification order, apply to the court for an order that the unfit director should pay compensation for any loss which he/she has caused. Like the disqualification process, the director can either sign a compensation undertaking or be subject to a compensation order.

Who can bring a CDDA 15A compensation claim?

The only person who can make a Section 15A CDDA application is the Secretary of State. It cannot be brought by a creditor or liquidator / administrator of a company. The only other person with the relevant standing would be a director themselves, who has already accepted a compensation undertaking, and who seeks to have it varied or revoked under section 15C of the CDDA 1986. The provisions here are akin to Section 8A off the Company Director Disqualification Act 1986 as set out above.

Recovery of money under CDDA 15A

There is tension in section 15A of the Company Director Disqualification Act 1986 in relation to the attempts of insolvency practitioners also looking to make recoveries against the directors. This is because a situation might arise where the insolvency practitioner is seeking monies from a director that the Insolvency Service is also seeking under the terms of a s15A CDDA 1986 compensation order. Of course, double recovery would be wrongful and must be avoided.

In our experience and based on what we have seen since the onset of the COVID-19 pandemic, the Insolvency Service has been solely seeking recovery of COVID-19 related bounce back loans, and the Insolvency Practitioner has been seeking anything and everything else. This appears to have settled any tension in the legislation in the medium term. The most common scenario we see is a bounce back loan in a company with no other creditors where the liquidator takes a back-seat and the Insolvency Service runs the primary investigation of any disqualifiable conduct.

Relation to Disqualification

The other element to be conscious of with s15A of the CDDA is how this new section affects the decision making of directors facing disqualification proceedings. It may be the case that the director has no problem accepting a disqualification ban for various factual reasons, such as impending retirement or there being no need to remain involved in a limited company at management / director level. However, if the Secretary of State indicates that they will bring a compensation order (which will be set out in their S16 CDDA letter threatening disqualification proceedings), then by accepting a disqualification undertaking the director will be admitting to the same liability for any compensation proceedings.

This could lead to significant unintended consequences for the disqualified director. It can be relied upon by the Insolvency Service in its own proceedings and make it very difficult for the director to defend compensation proceedings. This would lead to an adverse financial liability. The obvious consequence of this, as we see it, is that settling the matter, where the Insolvency Service has indicated compensation proceedings, is less desirable. It is very important that you take legal advice before signing a disqualification undertaking and ensure that any compensation liability is excluded as a pre-condition of your signing that undertaking.

How we can help

We regularly advise directors about Company Director Disqualification Act 1986 s15A Compensation orders, how to defend them and also how to avoid potential liability when negotiating or accepting a voluntary disqualification undertaking. 

Free Guides, Booklets & Useful links 

• Applying to reduce compensation undertaking
• Disqualification and compensation undertakings
• Director disqualification compensation orders – 10 frequently asked questions
• Disqualification compensation orders – avoid director risk
• COVID-19 effects – increased risk of disqualification compensation orders
• COVID-19 & compensation orders against directors
• Compensation Orders
• Liquidator claims and compensation orders
• Compensation order claims
• Director disqualification compensation orders
• Company creditors compensation orders
• Applying to reduce compensation undertaking
• Return to creditors and compensation orders – key questions answered 

Read the section in full

15A— Compensation orders and undertakings

[Power of court to make compensation order] The court may make a compensation order against a person on the application of the Secretary of State if it is satisfied that the conditions   mentioned in subsection (3) are met.

[Secretary of State’s power to accept compensation undertaking] If it appears to the Secretary of State that the conditions mentioned in subsection (3) are met in respect of a person who has offered to give the Secretary of State a compensation undertaking, the Secretary of State may accept the undertaking instead of applying, or proceeding with an application, for a compensation order.

[Conditions for s.15A(1), (2)] The conditions are that–

the person is subject to a disqualification order or disqualification undertaking under this Act, and

conduct for which the person is subject to the order or undertaking has caused loss to one or more creditors of an insolvent company or a company which has been dissolved without becoming insolvent, of which the person has at any time been a director.

[“Insolvent company”] An “insolvent company” is a company that is or has been insolvnt and a company becomes insolvent if–

the company goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up,

the company enters administration, or

an administrative receiver of the company is appointed.

[Time for application for compensation order] The Secretary of State may apply for a compensation order at any time before the end of the period of two years beginning with the date on which the disqualification order referred to in paragraph (a) of subsection (3) was made, or the disqualification undertaking referred to in that paragraph was accepted.

[Conduct in s.15A(3)(b)] In the case of a person subject to a disqualification order under section 8ZA or 8ZD, or a disqualification undertaking under section 8ZC or 8ZE, the reference in subsection (3)(b) to conduct is a reference to the conduct of the main transgressor in relation to which the person has exercised the requisite amount of influence.

[“The court”] In this section and sections 15B and 15C “the court” means–

in a case where a disqualification order has been made, the court that made the order,

in any other case, the High Court or, in Scotland, the Court of Session.

Overview

CDDA Section 17 is very important and deals with applications for permission to remain (or become a director again) despite a director disqualification order or disqualification undertaking.

At Francis Wilks & Jones our team has a 100% record in these applications dating back to 2002.

Process

Any person who is disqualified by an order of the court or a voluntary disqualification undertaking may apply under section 17 of the Company Director Disqualification Act 1986 to act as a director or take part in the promotion, formation, or management of a named company.

The process for bringing this application is to draft an affidavit, together with the relevant evidence, and to file it with the court and serve it on the Secretary of State. The evidence supplied by the director cannot seek to dispute the facts already contained within his initial disqualification and should focus on explaining why permission is required and why the court should grant it despite the person being banned from acting as a director.

Considerations the court will take into account when granting s17 CDDA Permission

For context, an important case to considered when dealing with CDDA s17 applications is Rwamba v Secretary of State. In this case, the court set out the legal principles derived from Company Director Disqualification Act section 17 and what the court may focus on in coming to its determination:

• The court has an unfettered discretion to grant permission to act as a director while disqualified;
• The applicant has the onus to persuade the court to grant permission;
• The court has to be satisfied that leave was appropriate (not the Secretary of State);
• Usually a ‘need’ to be appointed to a company is required, but this is not a precondition;
• The nature and seriousness of the disqualification must be considered;
• Where dishonesty was involved, this makes leave much more unlikely;
• The court should keep in mind the purpose of the initial order, which was to protect the public;
• Permission to act should not be given so freely as to undermine the disqualification regime; and
• The fact that an applicant had agreed to the imposition of conditions is a factor which might itself be seen as promoting the policy of deterring misconduct.

It is quite normal, as well, for an application for permission under section 17 of the Company Director Disqualification Act to be made at the same time as the original hearing for disqualification. This is desirable from a costs perspective and for allowing the same judge to consider both matters. It also means the director can continue in his current role without having to step down for a period of time until the CDDA s17 application is heard at court.

Practical Notes

Importantly, in our experience, any CDDA s17 applications made for disqualification ban of higher than 7 years will be subject to a lot more court scrutiny and much harder to succeed on. This is because the court will consider the gravity of the original disqualification offence – and the higher the ban, the more serious the allegations tend to be. It will be difficult to seek permission if your initial period of disqualification was higher than 7 or 8 years – and almost impossible if the director was disqualified for a top bracket ban between 11-15 years.  If the director disqualification ban is over 7 years, one option is to try and reduce the original ban and then follow this with a CDDA s17 application.

It should be noted that while the court may grant permission to act as a director, it will only do so with conditions (in most cases). For example, the court may require that independent accountants are appointed for the company and / or that there is an independent, third-party director involved in the company (potentially with financial expertise). The nub of the matter is that the director seeking permission will not be able to run a company unless he/she agree to a certain amount of further oversight and moderation. This, ideally, will all be agreed with the Secretary of State prior to the application being heard in court.

How we can help

We have a long and successful record in CDDA s17 applications – WINNING EVERY CASE STRETCHING BACK TO 2002. In so doing we have helped many people get back on their feet, save their businesses and livelihoods.  Our brilliant team can advise you on your prospects of success and help draft the evidence the court needs to see, liaise with the Secretary of State, negotiate the right conditions, work with the right barristers and prepare and attend the court hearing.

Free Guides, Booklets & Useful links 

• The benefits of seeking court permission to act as a director
• Seeking court permission to become or remain a director despite disqualification – 36 questions answered
• Court permission to remain a director despite disqualification
• Court proceedings for permission to act as a director
• Seeking permission to remain a director – section 17 Company Director Disqualification Act 1986
• Reducing the period of a director disqualification ban – 14 common questions answered

Read the section in full

17 Application for leave under an order or undertaking

• [Disqualification order by court with jurisdiction to wind up] Where a person is subject to a disqualification order made by a court having jurisdiction to wind up companies, any application for leave for the purposes of section 1(1)(a) shall be made to that court.

• [Disqualification orders made under s.2 or 5] Where–

1. a person is subject to a disqualification order made under section 2 by a court other than a court having jurisdiction to wind up companies, or
2. a person is subject to a disqualification order made under section 5, any application for leave for the purposes of section 1(1)(a) shall be made to any court which, when the order was made, had jurisdiction to wind up the company (or, if there is more than one such company, any of the companies) to which the offence (or any of the offences) in question related.

• [Disqualification undertaking accepted under s.7 or 8] Where a person is subject to a disqualification undertaking accepted at any time under section 5A, 7 or 8, any application for leave for the purposes of section 1A(1) (a) shall be made to any court to which, if the Secretary of State had applied for a disqualification order under the section in question at that time, his application could have been made.

(3ZA) [Disqualification undertaking accepted under s.8ZC] Where a person is subject to a disqualification undertaking accepted at any time under section 8ZC, any application for leave for the purposes of section 1A(1)(a) must be made to any court to which, if the Secretary of State had applied for a disqualification order under section 8ZA at that time, that application could have been made.

(3ZB) [Disqualification undertaking accepted unders.8ZE] Where a person is subject to a disqualification undertaking accepted at any time under section 8ZE, any application for leave for the purposes of section 1A(1)(a) must be made to the High Court or, in Scotland, the Court of Session.

(3A) [Disqualification undertaking accepted under s.9B] Where a person is subject to a disqualification undertaking accepted at any time under section 9B any application for leave for the purposes of section 9B(4) must be made to the High Court or (in Scotland) the Court of Session.

• [Persons subject to two or more disqualification orders] But where a person is subject to two or more disqualification orders or undertakings (or to one or more disqualification orders and to one or more disqualification undertakings), any application for leave for the purposes of section 1(1)(a), 1A(1)(a) or 9B(4) shall be made to any court to which any such application relating to the latest order to be made, or undertaking to be accepted, could be made.

• [Duty of Secretary of State to appear] On the hearing of an application for leave for the purposes of section 1(1)(a) or 1A(1)(a), the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.

• [Non-application of s.17(5)] Subsection (5) does not apply to an application for leave for the purposes of section 1(1)(a) if the application for the disqualification order was made under section 9A.

• [Duty of CMA and specified regulator to appear etc.] In such a case and in the case of an application for leave for the purposes of section 9B(4) on the hearing of the application whichever of the Competition and Markets Authority or a specified regulator (within the meaning of section 9E) applied for the order or accepted the undertaking (as the case may be)–

1. must appear and draw the attention of the court to any matters which appear to it or him (as the case may be) to be relevant;
2. may give evidence or call witnesses.

Overview

Section 22 of the Company Director Disqualification Act 1986 sets out the general meaning of expressions used in the CDDA.

The primary point of concern that arises in the case law here is the definition of a shadow director. As you can expect, this is a hotly contested area where shadow directors will assert first, before defending any misconduct, that they are not caught under the sections of the act as a shadow director. It is a problematic area and, generally speaking, the term ‘shadow director’ covers where a puppet board is set up which acts on the dictates of a non-director who masterminds the company’s activities from behind the scene.

While such a puppet board is an obvious situation once discovered, the area where people often fall foul of these rules is with consultancy advice. There can be a fine line between simply providing consultant advice pursuant to your contract with the company and also the directors of the company solely rely on that consultant advice to act accordingly. As you can expect, the system could be abused and the way protect your position is to ensure that you have a detailed consultancy agreement, make a full record of any board minute decisions, and have the entire relationship documented in writing.

If you do have any concerns as to the specific definitions of anything contained within the Company Director Disqualification Act 1986, or this is a point of issue in any investigation raised by the Insolvency Service against you, then please do get in touch with Francis Wilks & Jones for advice and assistance moving forward.

How we can help

We regularly assist and defend individuals who find themselves facing director disqualification claims and claims by liquidators or HMRC on the basis that they were a shadow director.  The law is complex and factual evidence is also critical in defending these claims. Our ability to analyse and understand both lead to many successfully defended claims.

Free Guides, Booklets & Useful links

Shadow and de facto directors

Directors’ fiduciary duties explained

Risks of being a non-executive director – 7 FAQs

Read the section in full

22 Interpretation

• [Effect] This section has effect with respect to the meaning of expressions used in this Act, and applies unless the context otherwise requires.

• [“Company”] “Company” means–

1. a company registered under the Companies Act 2006 in Great Britain, or
2. a company that may be wound up under Part 5 of the Insolvency Act 1986 (unregistered companies).

(2A) [“Overseas company”] An “overseas company” is a company incorporated or formed outside Great Britain.

• [Application of Insolvency Act ss.247, 251] Section 247 in Part VII of the Insolvency Act 1986 (interpretation for the first Group of Parts of that Act) applies as regards references to a company’s insolvency and to its going into liquidation; and “administrative receiver” has the meaning given by section 251 of that Act and references to acting as an insolvency practitioner are to be read in accordance with section 388 of that Act.

• [“Director”] “Director ” includes any person occupying the position of director, by whatever name called.

• [“Shadow director”] “Shadow director” , in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act, but so that a person is not deemed a shadow director by reason only that the directors act–

1. on advice given by that person in a professional capacity;
2. in accordance with instructions, a direction, guidance or advice given by that person in the exercise of a function conferred by or under an enactment;
3. in accordance with guidance or advice given by that person in that person’s capacity as a Minister of the Crown (within the meaning of the Ministers of the Crown Act 1975).

• [“Body corporate” and “officer”] “Body corporate” and “officer” have the same meaning as in the Companies Acts (see section 1173(1) of the Companies Act 2006).

• [“The Companies Acts”] “The Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006.

• [References to former legislation] Any reference to provisions, or a particular provision, of the Companies Acts or the Insolvency Act 1986 includes the corresponding provisions or provision of corresponding earlier legislation.

• [Application of Companies Acts] Subject to the provisions of this section, expressions that are defined for the purposes of the Companies Acts (see section 1174 of, and Schedule 8 to, the Companies Act 2006) have the same meaning in this Act.

• [References to acting as receiver] Any reference to acting as receiver–

1. includes acting as manager or as both receiver and manager, but
2. does not include acting as administrative receiver; and “receivership” is to be read accordingly.

No hearings for the week of 13/01/2025.