Defending a disqualification claim

I was delighted by the work done by the team at FWJ and cannot recommend them highly enough. Their legal and tactical knowledge was spot on. I can now continue to grow my business free from the worry of my original disqualification

A director we defended against a disqualification claim

If a director is considered to be guilty of misconduct in running a company that was subsequently placed into insolvency proceedings then they are liable to be disqualified as a director.

Directors can be disqualified either by

• voluntarily offering a disqualification undertaking; or
• by way of a disqualification order sought by the Secretary of State or official receiver.

Legal proceedings are never to be taken on lightly. Where the government (or rather the Secretary of State) is the claimant, the can have deeper pockets than most individuals, although it is also true that they operate on strict budgets.

Our web pages set out the main risks of formal legal proceedings. However, it should not be forgotten that there now risks of accepting a disqualification undertaking to avoid legal proceedings, due to the implementation of the compensation order regime which came in to force in 2015.

The key steps in a disqualification claim

A disqualification claim does not follow conventional legal proceedings. For example, no particulars of claim are served providing details of the legal specifications of the complaint.

• the claim exists as a claim form with accompanying evidence (i.e. affidavit evidence provided by a senior civil servant setting out the investigations carried out and the findings as a result of such investigations);
• on issue of the claim, a date will be fixed for a hearing;
• once the date has been fixed, the Secretary of State (normally acting through a private firm of solicitors) will serve the court sealed claim form, witness evidence and exhibits on the director(s);
• the disqualification proceedings may return to court to ensure the effective case management of these proceedings, and a number of hearings may be listed as the court manages the various stages and directs amendments of any deadlines for evidence etc;
• upon receipt or service of the disqualification claim papers, the directors have 28 days to prepare, file and serve their own affidavit evidence in answer to the claim. This is effectively their form of defence;
• upon receipt of this defence evidence, the Secretary of State (acting through their solicitors) will be able to reply to the director’s evidence. This will be the last piece of evidence filed in court in the proceedings (the directors have no further ability to answer this unless the court deems appropriate);
• the court will then list the case for a trial which will extend for a period dependent on the complexity of the legal arguments and the number of witnesses (and defendant directors) involved.

The use and role of witnesses

A director does not need to just rely on his/her own testimony as a witness in disqualification proceedings. Indeed, it is often the case that a former employee, co-director or accountant prepares their own affidavit evidence in support of the director’s defence.

• however, to obtain such evidence a director usually needs to be on good terms with the third party witness, which may not be so easy when they are (for example) a former employee who lost their job as a result of the company’s insolvency;
• equally, the Secretary of State can rely on witnesses of fact, i.e. the testimony of individuals who were there at the time, rather than the Secretary of State’s representative (who comes as a stranger and just reports on the outcome of investigations).

Director’s evidence

The director’s evidence in answer to the disqualification claim has to address the underlying purpose of director disqualification proceedings i.e. to protect the public interest.

Therefore, if the director’s evidence can demonstrate that, although the facts alleged did occur, the director was not acting irresponsibly or without due regard to the group at risk, then this may lead the court either to find that the director was not guilty of misconduct meriting a finding of unfitness, or that such misconduct was not sufficient to disqualify them.

There is no pattern of how a director’s evidence should be constructed in director disqualification proceedings – the situations addressed are varied and the allegations of misconduct often depend on lots of subjective matters – including the director’s personality, whether this is an analysis being done in retrospect and whether the public interest was truly at risk on this occasion.

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At Francis Wilks & Jones we have considerable experience of director disqualification matters and defending directors in legal proceedings. In a majority of cases where we have represented directors at trial, the defence has been successful. Our team is here to help.

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