Director Disqualification [2024 Guide]

Director disqualification is a legal process whereby an individual is prohibited from acting as a director of a company.

The primary aim of the director disqualification regime is to protect the public from what went wrong before happening again. Normally when a company goes into liquidation, creditors and other parties are affected. Often HMRC is left being owed significant money at the time of liquidation. If this has been the result of poor conduct by the directors of the company concerned, the legislation is there to stop them becoming a director again for a set period of time.

The aim of the legislation is to ensure that only responsible and competent individuals manage companies.

There are various examples of misconduct which might give rise to a finding of unfitness under the terms of the legislation – and therefore lead to disqualification. We will cover these in more detail later in this guide, but they can include

• Wrongful trading (continuing to do business when the company is insolvent),
• Misappropriation of company assets (using company funds for personal use),
• preferential treatment of creditors,
• bounce back loan abuse,
• failure to file company documents,
• non payment of taxes; and
• excessive pay

However, the rules in the Company Director Disqualification Act 1986 are complex and often directors are bounced by the Insolvency Service into agreeing to be disqualified when they have valid grounds to defend the claim.  Not only does there have to be misconduct which is serious enough to result in a finding of unfitness against the director, it also has to be in the public interest to disqualify the individual concerned. These are strict requirements for the Insolvency Service to meet.

At Francis Wilks & Jones, our expert team has extensive experience in advising and defending directors facing disqualification, ensuring the best possible outcomes for our clients. We have been advising clients on this subject since 2002 and genuinely are the leaders in this field.

The director disqualification regime is seen as playing an important role in maintaining the integrity of the business environment in England & Wales. It is meant as a deterrent against bad behaviour by directors and ensuring that they adhere to high standards of conduct.

By removing unfit directors, the disqualification process is aimed at fostering increased trust and confidence in corporate governance. This, in turn, it is designed to protect creditors, investors and employees of businesses.

On one level, the importance of director disqualification can be highlighted by looking at recent statistics over the last few years:

Having said that, it can be seen from a different perspective.

• There are an estimated 7.5 million directors in England & Wales. Corporate insolvencies are in the region of 20,000 a year.  When put in perspective, the numbers of people actually getting disqualified is very small although obviously not every director of an insolvent company was acting in an unfit way.  But the reality is that the chances of finding yourself on a receiving end of a claim is low.
• Most disqualification in the last 2 years directly relate to Bounce Back Loan disqualification and abuse of the Covid loan scheme. It can strongly be argued that the Insolvency Service has been going for the “low hanging fruit” to keep their numbers up and ignoring the more traditional types of misconduct such as wrongful trading, trading to the detriment and other more serious offences.

But if you do find yourself in the firing line, then you should take advice and try and defend the claim. Being disqualified can have very important consequences, such as financial, reputational and the practical – not being able to act as a director or in the management of a company for the period of the director ban.

Recent years have shown a steady number of disqualification orders, although much of this is down to an increase in disqualifications due to abuses of the Covid Loan Bounce Back scheme. In some ways this has artificially altered the figures.

These statistics underscore that disqualifications are back now that the pandemic is over. And we are seeing more traditional grounds of misconduct being levelled at directors now that the glut of Covid and Bounce Back Loan claims have gone through the system. What is noticeable is the rise in the cases in the middle bracket (5-10 years) and higher bracket (11-15 years) in recent years – showing that the Insolvency Service have been seeking longer periods of disqualification than was previously the case.     

Francis Wilks & Jones, with our deep expertise in this area, is committed to guiding and defending directors through this complex process.

Director disqualification means that an individual is legally barred from serving as a director or being involved in the management of a company for a specified period of time – ranging from 2-15 years.

This will be due to the fact that there has been some misconduct on their behalf which is serious enough to lead to a disqualification order being made.

Common examples include or poor conduct / bad behaviour include

• Abuse of the Covid Bounce Back Loan schemes,
• Non Payment of tax to HM Revenue & Customs
• Continuing to do business when the company is insolvent – wrongful trading
• Misappropriation of company assets such as using company funds for personal use
• preferential treatment of creditors,
• failure to file company documents at Companies House,
• excessive remuneration, pay and dividends.

The Company Directors Disqualification Act 1986 (CDDA) is the primary legislation that governs the disqualification of company directors in the UK. It outlines the process and procedure for disqualification, the grounds upon which an order can be made and the penalties which go with it.

It is a complex and relatively little known piece of legislation, but one we are very familiar with having done this type of work since 2002.

Whilst the Company Directors Disqualification Act 1986 (CDDA) Act has many parts, the main provisions we often come across and deal with are as follows

CDDA 1986 Section 1: General Overview

This section outlines the general framework of the CDDA, including the purposes of director disqualification and the scope of the Act. It sets the foundation for understanding the various provisions that follow.

CDDA 1986 Section 1A: Undertakings

Section 1A introduces the concept of undertakings, which allows directors to voluntarily agree to disqualification without the need for court proceedings. This can expedite the process and reduce legal costs.

CDDA 1986 Section 2: Indictable (Criminal) Offences

This section deals with disqualification for directors convicted of indictable offences, which are serious criminal offences. It ensures that individuals with a criminal record for such offences are barred from holding directorial positions.

CDDA 1986 Section 3: Breach of Company Legislation

Directors who have breached specific provisions of company legislation can be disqualified under this section. It covers various regulatory non-compliances that can harm the company’s stakeholders.

CDDA 1986 Section 5: Summary Conviction

Section 5 pertains to summary convictions, which are less serious offences tried in a magistrate’s court. Directors can be disqualified for offences that result in a summary conviction, ensuring accountability for all levels of misconduct.

CDDA 1986 Section 6: Unfit Conduct

This is a flagship provision of the Act, addressing disqualification due to unfit conduct. It includes misconduct such as wrongful trading, mismanagement, and failure to comply with legal obligations. The section ensures that directors who display unfit conduct are removed to protect the public and the business community.

CDDA 1986 Section 7: Procedure & Process of a Claim

Section 7 outlines the procedural aspects of disqualification claims, including how investigations are conducted and the steps involved in bringing a claim to court.

CDDA 1986 Section 8: Disqualification after Investigation

Following an investigation, directors can be disqualified if the findings indicate misconduct. This section ensures that directors cannot evade accountability even if the misconduct is discovered after the fact.

CDDA 1986 Section 8A: Variation of a Disqualification Order

This section allows for the variation or lifting of a disqualification order under certain circumstances. It provides flexibility in the enforcement of disqualification orders based on new evidence or changes in the director’s situation.

CDDA 1986 Section 9A: Disqualification Competition Orders

Section 9A pertains to disqualification orders related to anti-competitive practices. Directors involved in breaches of competition law can be disqualified to maintain fair market practices.

CDDA 1986 Section 11: Undischarged Bankruptcy

Directors who are undischarged bankrupts are disqualified under this section. It prevents individuals who have failed to manage their finances responsibly from holding directorial positions.

CDDA 1986 Section 12: Disqualification in Northern Ireland

This section extends the provisions of the CDDA to Northern Ireland, ensuring uniform enforcement across the UK.

CDDA 1986 Section 13: Criminal Penalties

Section 13 outlines the criminal penalties associated with breaches of the CDDA. It serves as a deterrent against misconduct by highlighting the severe consequences of violating the Act.

CDDA 1986 Section 14: Body Corporate

This section addresses the disqualification of corporate bodies, ensuring that companies themselves can be held accountable for misconduct, not just individual directors.

CDDA 1986 Section 15: Personal Liability of Disqualified Directors

Directors disqualified under the CDDA can be held personally liable for the debts of the company incurred during their period of disqualification. This section aims to protect creditors and ensure responsible conduct.

CDDA 1986 Section 15A: Compensation Orders and Compensation Undertakings

Introduced by the SBEE Act 2015, this section allows for compensation orders and undertakings, where disqualified directors can be required to compensate for losses caused by their misconduct.

CDDA 1986 Section 17: Applications for Permission to Remain Acting as a Director

Disqualified directors can apply for court permission to continue acting as a director under specific conditions. This section provides a pathway for directors to regain their directorial positions under strict oversight.

For more information about this section – read our fantastic new Guide on how to stay a director despite disqualification.

CDDA 1986 Section 22: Shadow Directors and Interpretation Clauses

Section 22 includes definitions and interpretation clauses, clarifying the terms used in the CDDA. It also covers the concept of shadow directors, who can be disqualified if they are found to be acting as directors in all but name.

For a more detailed review of the CDDA – feel free to look at our specific Company Directors Disqualification Act 1986 [2024 Guide]

Whilst there are now many law forms out there professing to be experts in this field, our team at  Francis Wilks & Jones genuinely is. We have been advising directors on these claims since 2002. Whatever you do next, don’t do it without calling us first.

What does Director Disqualification mean?

Director disqualification means that an individual is legally prohibited from serving as a director of any company for a specified period, typically due to misconduct or failure to meet legal obligations. Misconduct can include actions such as:

• Wrongful trading
• Fraudulent trading
• Misappropriation of company funds
• Failure to maintain accurate company records

The goal of director disqualification is to protect the public, creditors, and the business community from the adverse effects of unfit directors, ensuring that only responsible individuals can manage and direct companies.

Francis Wilks & Jones is dedicated to defending directors and helping them understand their legal position and rights.

What is the Company Directors Disqualification Act 1986?

The Company Directors Disqualification Act 1986 (CDDA) is the cornerstone legislation governing the disqualification of directors in the UK. This Act sets out the legal framework for disqualifying directors, including:

• The grounds for disqualification
• The procedures to be followed
• The consequences of disqualification

Act has been amended over time to address new challenges and incorporate additional provisions, such as compensation orders and voluntary undertakings. Our team at Francis Wilks & Jones is adept at interpreting these legislative nuances to provide top-tier legal advice and representation.

How long can a director be disqualified for?

A director can be disqualified for a period ranging from 2 to 15 years, depending on the severity of their misconduct. The periods are categorised into three brackets:

This categorisation ensures that those who pose the greatest risk to the business community are barred from holding directorial positions for the longest period, reflecting the severity of their actions.

Francis Wilks & Jones can provide expert guidance on the likely duration of disqualification based on the specifics of your case.

What disqualifies you from being a director?

If a director has been involved in misconduct, they this puts them at risk. The misconduct has to be serious in nature to give rise to what is called a “finding of unfitness” under the terms of the CDDA 1986.  Added to this, it must also be in the public interest to disqualify a director.

Misconduct comes in a wide variety of ways, including wrongful trading, failure to comply with company laws, failing to keep proper accounting records, not filing returns with Companies House, failing to pay taxes, continuing to trade while insolvent and using company assets for personal gain.

At Francis Wilks & Jones, our experienced lawyers can help you navigate these issues and mount a robust defence.

What happens after director disqualification?

After disqualification, the individual cannot act as a director or be involved in the management of any company without court permission. Breaching a disqualification order can lead to:

• Significant fines
• Criminal charges
• Possible imprisonment

Additionally, the disqualified director’s professional reputation and future career prospects can be severely damaged. They may also face further civil actions from affected creditors or shareholders, and their ability to work in certain industries could be restricted.

Such situations can be very serious. But our team at Francis Wilks & Jones have a track record of successfully defending individuals who find themselves in such a situation.

Who is disqualified to act as a director?

Any individual found guilty of misconduct, incompetence, or breach of their director fiduciary duties related to company management can be disqualified by the court. This includes:

• Officially appointed directors (de facto directors)
• People who are not officially appointed at Companies House but who effectively take on the day to day role of director (de jure directors)
• Shadow directors, who may not hold a formal title but exert significant control over the company’s affairs whilst trying to keep behind the scenes

The aim is to ensure that all individuals with substantial influence over company decisions are held accountable for their actions and barred from holding directorial roles if found unfit.

Our team at Francis Wilks & Jones is experienced in defending such cases and can provide comprehensive legal support.

What is the period of disqualification of directors?

A period of disqualification ranges from 2 to 15 years, based on the specifics of the case and the level of misconduct and wrongdoing.

• Less severe cases might result in a 2 to 5-year ban, which often involves minor infractions or first-time offences.
• More serious infractions may lead to a 6 to 10-year ban, especially in cases involving significant financial mismanagement or repeated failures to comply with statutory duties.
• The most serious conduct, such as deliberate fraud, can result in a disqualification of 11 to 15 years, reflecting the need to protect the public and the business community from severe risks.

Whatever bracket you find yourself facing, Francis Wilks & Jones offers expert advice on the implications of disqualification periods and potential strategies for defence and reduction.

Various grounds for disqualification are used to support a claim by the Insolvency Service that a director is guilty of such a level of misconduct that they should be disqualified from acting as a director.

This can range from simple incompetence right through to deliberate acts or wrongdoing.

Below is a detailed table outlining the common grounds for director disqualification along with their relevant legislation and the average number of disqualifications over the past few years:

These grounds for disqualification align with the enforcement outcomes and statistics published by the government, which highlight the frequency and severity of such misconduct amongst director.

For a comprehensive list of disqualification reasons and their frequencies, you can refer to the Insolvency Service enforcement outcomes 2023-2024 or visit this page on our website setting out Director Disqualification Outcomes.

The Bounce Back Loan Scheme (BBLS) was introduced to support businesses during the COVID-19 pandemic. However, significant misuse has been detected, leading to numerous disqualifications. Whilst it is likely to drop away as a main reason for disqualification (as cases effectively become time barred, it is worth looking at it in some more detail as the numbers are so high.

Here are some key statistics:

• 2023-24: 831 directors were disqualified for Covid financial support scheme misconduct, with an average disqualification length of over nine-and-a-half years.
• 2022-23: 459 director disqualifications involved abuse of Covid support schemes.
• 2021-22: 140 directors were banned for abusing the Bounce Back Loan Scheme.

At first sight, these figures illustrate a stringent crackdown on directors who exploited pandemic relief efforts, reflecting a substantial portion of the overall disqualifications in recent years. However, the reality is that these claims are viewed as “low hanging fruit” by the Insolvency Service and easy to help get their quota numbers up.  It would appear that the more traditional grounds of disqualification have been ignored over the last few years in favour of these “quick wins”

Having said that, our team at Francis Wilks & Jones, our team specialises in defending directors against disqualification claims and in particular Bounce Back Loan claims. We provide expert legal advice and representation, ensuring that directors are fully aware of their rights and options throughout the legal process.

If you want to learn more about Bounce Back Disqualification – you can read our detailed guide on the subject matter.

Directors can be disqualified for various reasons, primarily revolving around their conduct and the management of the company. Disqualification serves as a measure to protect the public, creditors, and the business community from the actions of unfit directors. Some of the primary reasons for disqualification include:

• Misconduct
• Incompetence
• Breach of legal obligations

Common specific reasons include:

• Wrongful trading: Continuing business operations despite knowing the company is insolvent, which is an offence under the Insolvency Act 1986.
• Fraudulent trading: Engaging in deceitful practices to mislead creditors or investors, also covered under the Insolvency Act 1986.
• Failure to keep proper accounting records: Not maintaining accurate financial records as required by the Companies Act 2006.
• Failure to file returns with Companies House: Non-compliance with statutory filing requirements under the Companies Act 2006.
• Misappropriation of company assets: Using company funds for personal use, which breaches fiduciary duties.
• Failure to pay taxes: Not fulfilling tax obligations, which can result in disqualification under various tax laws.
• Bounce back loan abuse. Misuse of funds provided under the Bounce Back Loan Scheme has led to a significant number of disqualifications. For instance, 831 directors were banned for such abuse in 2023-24 alone.

If you find yourself facing any of these allegations, out team at Francis Wilks & Jones can help. We have successfully defended hundreds of directors since 2002.

Can a director be disqualified for non-compliance with statutory requirements?

Yes, a director can be disqualified for failing to comply with statutory requirements such as filing annual returns and financial statements with Companies House, as required by the Companies Act 2006. This non-compliance can lead to significant legal and financial consequences, and disqualification helps to ensure that directors adhere to their legal obligations.

Our team at Francis Wilks & Jones is skilled at navigating these specific allegations and regularly attend the Magistrates court in Cardiff where these claims are heard. If you need help on this subject, Stephen Downie can meet you in our Cardiff office to discuss your claim

How does director misconduct lead to disqualification?

Director misconduct, such as engaging in fraudulent trading (Insolvency Act 1986), misappropriating company assets (breach of fiduciary duties), or failing to maintain proper records (Companies Act 2006), can lead to disqualification. The disqualification process ensures that directors who engage in unethical or illegal activities are barred from holding directorial positions.

Francis Wilks & Jones offers comprehensive legal support to directors facing misconduct allegations, helping them understand their rights and options.

What role does financial mismanagement play in director disqualification?

Financial mismanagement, including failure to keep accurate financial records (Companies Act 2006), misusing company funds, and engaging in wrongful trading (Insolvency Act 1986), can lead to director disqualification.

• Proper financial management is crucial for maintaining the integrity of a company and having proper record keeping too is also vital.
• Failure to do either of these are common grounds for later disqualification claims.

Our expert lawyers at Francis Wilks & Jones are well-versed in defending against financial mismanagement claims, ensuring that directors receive the best possible representation.

What is the basis for disqualification of directors?

The basis for disqualification includes actions that demonstrate unfitness to manage a company and the need to protect the public against the same thing happening again.

• These actions can range from financial mismanagement and misconduct to breaches of fiduciary duties and non-compliance with legal requirements such as those in the Companies Act 2006 and the Insolvency Act 1986.
• The goal is to remove directors who pose a risk to creditors, shareholders, and the business community.

Francis Wilks & Jones specialises in defending directors against disqualification, leveraging our extensive experience to protect your interests. We have been heling directors defend these claims since 2002.

How do you know if a director is disqualified?

Information about disqualified directors is publicly available through the Companies House register.

Interested parties can search for disqualified directors by name or company to determine if an individual has been barred from holding a directorial position.

How do you become a disqualified director?

A director becomes disqualified through legal proceedings initiated by regulatory bodies such as the Insolvency Service or the Magistrates Court.

The process is dealt with in more detail later in this guide, but involves an investigation into the director’s conduct, collection of evidence, initial questionnaires and enquiries, formal investigation letters and then legal proceedings if the case continues.

At Francis Wilks & Jones, we provide expert legal representation throughout this process, ensuring that directors maximise their chances of getting the claims dropped.

Director disqualification proceedings involve a series of steps and legal procedures designed to ensure fairness and due process. Understanding these steps can help directors navigate the process and seek appropriate legal advice.

Seeking legal advice as early as possible in the process is always advisable Sometimes, for the best of intentions, directors will cooperate on their own with the Insolvency Service and say things which can make things much worse. Remember – anything you say or write might end up being used in evidence against you if legal proceedings are issued. Going back on something you have said earlier is always very difficult It can even be the way you say it that makes all the difference.  Our team at FWJ can make sure you avoid these common pitfalls.

Here is an overview of the key stages in disqualification proceedings:

1. Investigations and initial enquiries

The process typically begins with an investigation by the Insolvency Service or another regulatory body. These investigations aim to determine whether there has been any misconduct or failure to comply with statutory obligations.

• Initial Enquiries. The investigation may start with informal enquiries or requests for information from the director or company. This can include reviewing financial records, correspondence, and other relevant documents.
• Questionnaire. Directors may be asked to complete a questionnaire detailing their conduct and the company’s affairs. This questionnaire is a critical component of the investigation and helps gather essential information. We would warn any director to be very careful about completing these forms without taking legal advice Even the most innocuous of questions can end up coming to bite you if you answer it wrongly.

2. Pre-Section 16 letter stage

Before a formal Section 16 letter is issued, there may be a pre-Section 16 stage where the director is informed of potential disqualification and given an opportunity to respond.

• Pre-Section 16 Correspondence. This stage involves communication between the regulatory body and the director, highlighting concerns and requesting additional information or explanations.
• Response Preparation. Directors should prepare a thorough and accurate response, ideally with legal assistance, to address any allegations and provide mitigating evidence.

3. Section 16 letter

The formal process begins with the issuance of a Section 16 letter under the Company Directors Disqualification Act 1986.

• Formal notice. The Section 16 letter formally notifies the director of the intention to seek a disqualification order. It outlines the grounds for disqualification and provides the director with an opportunity to make representations.
• Representation period. Directors have a specified period to respond to the Section 16 letter, during which they can present their case and submit any evidence or arguments against disqualification.
• If a case has got to section 16 stage then it is likely to continue unless a very good response is provided.

4. Post-Section 16: Before issuing proceedings

After the director responds to the Section 16 letter, there is a period of assessment before formal proceedings are issued.

• Evaluation of representations. The regulatory body evaluates the director’s response and any submitted evidence. Based on this evaluation, they decide whether to proceed with formal disqualification proceedings.
• Settlement discussions. There may be opportunities for settlement discussions or negotiations to avoid formal court proceedings. This can include agreeing to a disqualification undertaking.  We often help directors at the settlement discussion stage.

5 Issuing legal proceedings

If the matter is not resolved at the pre-litigation stages, formal disqualification proceedings are issued.

• Filing a Claim. The Secretary of State files a claim in court, outlining the grounds for disqualification and presenting evidence of the director’s misconduct.
• There are then various steps up to trial such as exchange of witness statement which need to take place

6. Trial at court – and the Judge’s decision

The court evaluates the evidence at trial and makes a decision regarding disqualification. This will either be

• No disqualification order is made. If this is the case, the Defendant is not disqualified and they will then look to recover their costs of defending the proceedings.
• Disqualification order made. The disqualification order will be made (between 2-15 years) and the Defendant will also have to pay the Claimant’s legal costs.

Under certain circumstances, a disqualification order can be reduced or a director able to remain acting as a director despite disqualification.

• Section 8A Applications. Directors can apply to vary or lift a disqualification order under Section 8A of the CDDA 1986. This requires demonstrating a change in circumstances or new evidence. We can help advise you on the merits of these types of applications.
• Court permission to remain acting as a director. Directors can also seek court permission to act as a director despite the disqualification, typically under strict conditions. These are know as section 17 applications (under section 17 of the CDDA 1986). Our team at FWJ has a 100% success rate in these applications dating back to 2002. For more information on this – read our free guide on how to stay a director despite disqualification.

What is a Section 16 letter?

A section 16 letter is a formal notification from the Insolvency Service indicating the intention to seek a disqualification order. It outlines the grounds for disqualification and allows the director to make representations in their defence.

How should a director respond to a Section 16 letter?

Directors should respond to a section 16 letter by providing a thorough and well-documented response if at all possible, addressing each allegation and presenting mitigating evidence. It is highly advisable to seek legal assistance to ensure the response is comprehensive and effective.

What happens if a director does not respond to a Section 16 letter?

If a director does not respond to a Section 16 letter, the Insolvency Service are likely to continue with formal disqualification legal proceedings. This increases the likelihood of a disqualification order being issued without the director’s input or defence.

Can disqualification proceedings be settled out of court?

Yes, disqualification proceedings can often be settled out of court through negotiations. This can include agreeing to a disqualification undertaking, where the director voluntarily accepts a period of agreed disqualification without the need to go to a full trial.

What is the role of the court in disqualification proceedings?

The court evaluates the evidence presented by both parties and makes a judgment regarding the director’s fitness to hold office. If the court finds the director unfit, it issues a disqualification order specifying the period of disqualification.

Can a disqualification order be challenged?

Yes, a disqualification order can be challenged in limited circumstances by applying to vary or lift the order under Section 8A of the CDDA 1986. Directors can also seek court permission to stay as a director despite the disqualification under section 17 of the CDDA 1986.

What is a disqualification undertaking?

A disqualification undertaking is a voluntary agreement by the director to accept disqualification without court proceedings. It is often used to avoid the costs and time associated with formal court proceedings.

How long does the disqualification process take?

The duration of the disqualification process can vary depending on the complexity of the case and the stages involved. It can take up to 18 months – 2 years if it goes all the way to a full trial But many cases settle earlier than this.

What are the consequences of a disqualification order?

A disqualification order bars the director from acting as a director of any company for the specified period. It is also recorded on the Companies House register, and this can impact on the director’s reputation and future business and career opportunities. People can search the register for disqualified company directors at Companies House.

Can disqualified directors still be involved in business?

Disqualified directors are barred from acting as directors but may still be involved in business in other capacities. However, they must comply with the terms of the disqualification order and may require court permission for certain activities. It is vital not to stray over the line and undertake activities which might contravene the director ban. If you do this you could end up in prison.

Voluntary undertakings offer an alternative to formal disqualification proceedings, allowing directors to agree to disqualification without having to attend a full court hearing. This process is much quicker and less costly than going to court and it was it was introduced 20 years ago.

Set out further in this section is a detailed overview of disqualification and voluntary undertakings.

Voluntary disqualification undertakings are legally binding agreements where a director consents to disqualification without the need for court action. This process helps avoid lengthy and expensive legal proceedings.

• Nature of undertakings. The director voluntarily agrees to be disqualified for a specified period, which is typically less than what might be imposed by the court. Often a discount is offered to get the director to sign up to an undertaking
• Legally binding. Once agreed upon, the undertaking is enforceable by law, and any breach can lead to further legal consequences including imprisonment if breached.
• They are a simple 2-3 page document. They set out what the individual is prohibited from doing for the duration of the disqualification. It also sets out the agreed “matters determining unfitness” – i.e. setting out what the wrongdoing was.

Voluntary disqualification undertakings offer several benefits to both the regulatory body and the director.

• Time and cost efficiency. Undertakings expedite the disqualification process, saving time and legal costs for both parties.
• Reduced disqualification period. Directors may receive a reduced disqualification period compared to what a court might impose.
• Avoiding court proceedings. By agreeing to an undertaking, directors can avoid the publicity and stress of a court hearing.

While voluntary undertakings can be beneficial, they also carry certain risks for directors, particularly without proper legal advice.

• Exposure to financial claims. Agreeing to a voluntary undertaking can open directors up to financial claims under a Compensation Order. This means that directors could be held financially liable for the losses caused by their misconduct.  Not many directors realise this when they sign off an undertaking. Our team can help reduce this risk even if an undertaking is signed off.
• Longer disqualification periods. Without professional advice, directors might agree to a disqualification period longer than necessary. Our advice can help negotiate a fair period based on the specifics of the case.
• Impact on Section 17 applications. A longer disqualification period agreed through an undertaking can affect the director’s ability to make a successful Section 17 application for permission to remain acting as a director. Proper legal guidance is essential to avoid such pitfalls. Failure to do this can result in unintended long-term risks. To read more about these types of applications, read our free guide on how to stay a director despite disqualification.

The process involves several steps, from initial discussions to formal agreement.

• Initial discussions. The Insolvency Service will usually indicate the length of ban (often slightly reduced) they would accept by way of an undertaking when they send out the section 16 letter.
• Drafting the undertaking. If the director agrees, a draft undertaking is prepared by the Insolvency Service, outlining the key terms and duration of the disqualification.
• Review and agreement. The director reviews the draft – ideally with the benefit of legal advice – and signs off the terms. Once signed, the undertaking is legally binding and comes into effect within 21 days after signing.

Section 1A of the Company Directors Disqualification Act 1986 specifically addresses voluntary undertakings.

• The legal framework. This section provides the legal framework for voluntary undertakings, including the procedures and requirements for entering into such agreements.
• Enforcement. It also outlines the enforcement mechanisms for ensuring compliance with the undertaking.

Statistics on voluntary undertakings

The majority of director disqualifications in the UK are agreed upon through voluntary undertakings rather than formal court proceedings. Here are some key statistics

These statistics demonstrate that voluntary undertakings are the preferred method for resolving disqualification cases, highlighting their efficiency and practicality.

What is a voluntary undertaking?

A voluntary disqualification undertaking is a legally binding agreement where a director consents to disqualification without the need for court action. This process allows the director to avoid the costs and time associated with formal court proceedings, which can be lengthy and expensive. By opting for a voluntary undertaking, directors can also avoid the publicity and stress that often accompany court cases. Once the undertaking is signed, it is legally enforceable, meaning that any breach of its terms can lead to further legal consequences.

Why might a director choose a voluntary undertaking

Directors might choose a voluntary undertaking for several reasons.

• Firstly, it can expedite the disqualification process, allowing them to resolve the matter quickly and move on.
• Secondly, the disqualification period agreed upon in a voluntary undertaking is often shorter than what might be imposed by the court.
• Thirdly, avoiding court proceedings means less public exposure and stress.

Additionally, directors can negotiate the terms of the undertaking, potentially securing more favourable conditions than those imposed by a court order.

Our expert team can help in these negotiations to ensure the best possible outcome.

How is a voluntary undertaking enforced

Once a voluntary undertaking is agreed upon and signed, it becomes legally binding and enforceable by law and the individual must resign any directorships and cease being involved in the management of a company within 21 days from signing.

This means that any breach of the undertaking’s terms can result in legal action and further penalties. The enforcement mechanisms are outlined in Section 1A of the Company Directors Disqualification Act 1986. Regulatory bodies, such as the Insolvency Service, monitor compliance with undertakings.

If a director breaches the terms, they can face additional sanctions, including potential financial penalties, extended disqualification orders and / or imprisonment.

Can the terms of a voluntary undertaking be negotiated

Yes, the terms of a voluntary disqualification undertaking can and should be negotiated. Our team has 20+ years of doing this for directors.

It is vital that the term of the ban is negotiated down as much as possible, and also that the grounds of misconduct are watered down as much as you can. Our team at FWJ can help directors present their case more effectively and achieve maximum success.

What are the consequences of breaching a voluntary undertaking

Breaching a voluntary undertaking can lead to significant legal consequences.

These may include additional penalties, such as fines or extended disqualification periods. The breach can also trigger formal court proceedings, leading to more severe sanctions and possible imprisonment. Furthermore, breaching an undertaking can damage a director’s reputation and credibility, making it difficult to secure future business opportunities. It is crucial to adhere strictly to the terms of the undertaking to avoid these adverse outcomes.

How long does the process of agreeing to a voluntary undertaking take

The duration of the process can vary depending on the complexity of the case but it is usually relatively quick – a matter of days or weeks, subject to the willingness of both parties to negotiate. Generally, the process is much quicker than formal court proceedings.

It involves initial discussions, drafting the undertaking, reviewing the terms, and reaching an agreement. With the assistance of our team, the process can be expedited, ensuring that the director understands the terms and implications of the undertaking.

Can a voluntary undertaking be revoked or amended

Once a voluntary undertaking is agreed and signed, it is legally binding. It is not possible to go behind an agreed undertaking

What is the role of legal counsel in the voluntary undertaking process

Good solicitors play a crucial role in the voluntary undertaking process. They provide essential guidance on the legal implications of the undertaking, help negotiate favourable terms, and ensure that the director’s rights and interests are protected as fully as possible.

Our team at FWJ will assist in drafting the undertaking, preparing responses to regulatory bodies, and representing the director in any subsequent legal proceedings. Our expertise is invaluable in navigating the complexities of disqualification law.

Are voluntary undertakings public

Yes, like formal disqualification orders, voluntary undertakings are recorded on the Companies House register and the length of ban and reasons for it are publicly accessible. Anyone can search the register for disqualified company directors on Companies House.

This means that anyone can view the details of the disqualification, including potential business partners, creditors, and clients. The public nature of the undertaking underscores the importance of carefully considering the terms and implications before agreeing. While it provides transparency, it also highlights the director’s misconduct, which can affect their reputation and future business opportunities.

What is the typical duration of a voluntary undertaking

The duration of a voluntary undertaking can vary depending on the nature and severity of the misconduct involved. Typically, the period is slightly shorter than what the Insolvency Service might have asked for at a full trial at court – a discount on the period reflects the avoidance of unnecessary legal costs form their perspective.

Directors regularly work with our team to negotiate a fair and reasonable duration, taking into account any mitigating factors and the potential impact on their future business activities.

Compensation orders were introduced by the Small Business, Enterprise and Employment Act 2015, specifically under Section 15A of the Company Directors Disqualification Act 1986 (CDDA 1986). This provision allows the court to order disqualified directors to compensate creditors for the financial losses caused by their misconduct

Compensation orders are legal mandates requiring disqualified directors to pay compensation to creditors affected by their wrongful actions. These orders aim to provide redress for the financial harm caused by directors’ unfit conduct.

• The legal framework. Compensation Orders were introduced by the Small Business, Enterprise and Employment Act 2015 under Section 15A of the CDDA 1986.
• Purpose. To provide financial restitution to creditors who have suffered due to the director’s misconduct.

Compensation orders can be issued when the court finds that the director’s conduct has caused financial loss to one or more creditors. The Insolvency Service can apply for a compensation order within two years of the director being disqualified.

• Criteria for issue. The court must be satisfied that the director’s actions have resulted in quantifiable financial loss to creditors.
• Timeframe. Applications must be made within two years of the disqualification order.

The process involves several steps, including investigation, application by the Insolvency Service, and court proceedings.

• Investigation. The Insolvency Service investigates the director’s conduct and assesses the financial impact on creditors.
• Application. If grounds for compensation are found, the Insolvency Service applies to the court for a compensation order.
• Court proceedings. The court reviews the evidence and decides whether to issue a compensation order and determine the amount payable.

Compensation orders are relatively new, and data on their issuance is emerging. Below are some key statistics highlighting their impact.

These statistics illustrate the growing use of compensation orders to hold directors accountable for financial misconduct.

Wat are the benefits of compensation orders?

Compensation orders are designed to offer benefits  to creditors as well as aiming to improve the overall corporate governance framework.

• Redress for creditors. Provides financial restitution to creditors harmed by the director’s actions.
• Deterrence. Acts as a deterrent for directors considering engaging in unfit conduct.
• Accountability. Enhances accountability and promotes better corporate governance practices.

The new regime is yet another hurdle for individuals of companies which went into liquidation.

• They make agreeing a voluntary undertaking more challenging. Unlike before, signing an undertaking now carries with it a risk of a compensation order following down the line.
• Complexity and costs. The process to challenge a compensation claim can be expensive for a an individual. It is always the case that the Insolvency Service has deeper pockets than most directors – and this is something they try and use to their advantage.
• Stress.  Some directors are unaware of these types of claims – and they come as a shock when they think the disqualification process has actually finished.

What is a compensation order

A compensation order is a binding legal order requiring disqualified directors to pay compensation to creditors harmed by their misconduct. This process aims to provide financial restitution for the losses caused by the director’s unfit conduct, ensuring that creditors are compensated for their financial suffering. The court assesses the evidence and determines the appropriate compensation amount.

When can a disqualification compensation order be issued

A compensation order can be issued when the court finds that a director’s misconduct has caused financial loss to one or more creditors. The Insolvency Service must apply for the order within two years of the director’s disqualification. The court requires clear evidence of financial harm and quantifiable losses to issue such an order.

How is a compensation order enforced

Once issued, a compensation order is legally binding and enforceable by law. The court and the Insolvency Service oversee its enforcement, ensuring compliance. If the disqualified director fails to pay, additional legal actions, including asset seizure or further penalties, may be pursued to recover the compensation amount.

What are the benefits of compensation orders

Compensation orders provide financial restitution to creditors harmed by the director’s misconduct, acting as a deterrent against unfit conduct. They enhance corporate accountability and promote better governance practices. By holding directors financially responsible, these orders contribute to a fairer corporate environment.

What are the risks associated with compensation orders

The process of obtaining and enforcing compensation orders can be complex and costly, requiring detailed investigations and legal proceedings. Ensuring compliance can be challenging, especially if the director lacks sufficient assets. Additionally, imposing significant financial burdens on directors can lead to personal financial distress.

Can a compensation order be contested

Yes, a disqualified director can contest a compensation order by presenting evidence to challenge the claims of financial misconduct and loss. The court will review the evidence from both parties before making a final decision. Our team at FWJ can assist in presenting a strong defence against these claims an any order made.

What role does the Insolvency Service play in compensation orders

The Insolvency Service investigates the director’s conduct, assesses the financial impact on creditors, and applies to the court for compensation orders. They play a crucial role in gathering evidence and ensuring that creditors receive restitution for their losses. The Insolvency Service also oversees the enforcement of these orders.

How does a compensation order affect a director’s future

A compensation order can have significant financial implications for a director, potentially leading to personal financial distress. It also impacts their reputation and credibility, making it challenging to secure future business opportunities. The financial burden and public record of the order can have long-lasting effects on the director’s career.

Are compensation orders public

Yes, compensation orders are recorded on the Companies House register and are publicly accessible. This transparency ensures that potential business partners, creditors, and clients are aware of the director’s misconduct. While it provides accountability, it also highlights the director’s financial liabilities, affecting their future business prospects. Further information about this can be found in the Companies House guide to Compensation orders.

What is the typical duration of the compensation order process

The duration of the compensation order process can vary depending on the complexity of the case and the efficiency of the investigation and legal proceedings. Generally, it involves several stages, including investigation, application, and court review. Our team can help defend these claims – and have good success rates in getting them dismissed entirely.

Disqualification in the Magistrates’ court for Companies House offences typically occurs when directors fail to comply with statutory requirements, such as filing annual returns or accounts. This section provides an overview of the process and the implications of such disqualifications.

Companies House offences involve breaches of statutory duties that directors are required to fulfil under the Companies Act 2006. These offences can include:

• Failure to file annual accounts (Section 441)
• Failure to file annual returns (Section 854)
• Failure to notify changes in company details (Section 167 for directors, Section 276 for secretaries)
• Failure to keep and maintain statutory registers (Sections 113, 114, 162, 165, 275)
• Failure to keep accounting records (Section 386)
• Failure to register charges (Sections 860, 878)

Such breaches can lead to enforcement actions, including disqualification proceedings.

The process of disqualification for Companies House offences involves several steps:

• Investigation. Companies House monitors compliance and identifies breaches. They may send reminders and notices to the directors.
• Prosecution. If breaches are not rectified, Companies House can prosecute the directors in the Magistrates’ court.
• Court proceedings. The Magistrates’ court reviews the case, and if the directors are found guilty, they can be disqualified from acting as directors.

Section 5 of the CDDA 1986 covers the disqualification of directors upon summary conviction of an offence related to the management of a company.

• The legal framework. This provides the basis for disqualification following summary conviction for Companies House offences.
• The implications. Directors convicted under this section can be disqualified for up to five years.

Some of the most common offences that can lead to disqualification under the Companies Act 2006 include:

• Failure to file accounts. Directors are required to file annual accounts with Companies House. Failure to do so can result in fines and disqualification (CA Section 441).
• Failure to file annual returns. Annual returns provide essential information about the company. Not filing them can lead to penalties (Section 854).
• Failure to notify changes. Directors must notify Companies House of changes in company details, such as the appointment or resignation of directors (CA Section 167) or secretaries (CA Section 276). Failure to comply can result in enforcement actions.
• Failure to keep statutory registers. Directors must keep various statutory registers available for inspection (CA Sections 113, 114, 162, 165, 275).
• Failure to keep accounting records. Directors must keep proper accounting records and know where and for how long they must be kept (CA Sections 386, 388).
• Failure to register charges. Directors must register charges with Companies House (CA Sections 860, 878).

To read more – visit our main landing page on Disqualification in the Magistrates Court.

Here are some key statistics on the number of disqualifications due to Companies House offences:

Navigating the process of disqualification for Companies House offences can be complex. Seeking professional legal advice from our brilliant disqualification team at Francis Wilks & Jones provides many benefits:

• Expert guidance. Our experienced lawyers can help directors understand their obligations and avoid breaches.
• Defence experts. We have years’ of experience defending magistrate claims.
• Representation. In case of prosecution, we provide robust representation in court to mitigate the consequences. We have an office in Cardiff and can attend the Cardiff Magistrates Court at very short notice

What are Companies House offences?

Companies House offences involve breaches of statutory duties that directors are required to fulfil under the Companies Act 2006. Common offences include failure to file annual accounts (CA section 441), annual returns (Section 854), and notify changes in company details (CA section 167 for directors, CA section 276 for secretaries). These breaches can lead to enforcement actions, including fines and disqualification proceedings.

How does disqualification in the Magistrates’ court work?

The process begins with Companies House monitoring compliance and identifying breaches. If the breaches are not rectified, Companies House can prosecute the directors in the Magistrates’ court. The court reviews the case, and if the directors are found guilty, they can be disqualified from acting as directors for up to five years.

What are the common Companies House offences leading to disqualification?

The most common offences under the Companies Act 2006 include failure to file annual accounts (Section 441), failure to file annual returns (Section 854), and failure to notify changes in company details (Section 167 for directors, Section 276 for secretaries). These breaches can result in fines, penalties, and disqualification proceedings.

What is Section 5 of the CDDA 1986?

Section 5 of the CDDA 1986 covers the disqualification of directors upon summary conviction of an offence related to the management of a company. It provides the legal framework for disqualification following summary conviction for Companies House offences, allowing for disqualification periods of up to five years.

What are the penalties for Companies House offences?

Penalties for Companies House offences can include fines, disqualification from acting as a director, and potential criminal charges for serious breaches. The severity of the penalties depends on the nature and extent of the offence. Compliance with statutory requirements is crucial to avoid these significant consequences.

Can a disqualification for Companies House offences be appealed?

Yes, a director can appeal a disqualification order issued by the Magistrates’ court. The appeal process involves presenting new evidence or highlighting procedural errors during the initial proceedings. Francis Wilks & Jones can provide expert legal advice and representation in the appeals process to help overturn or reduce the disqualification period.

How can a director avoid disqualification for Companies House offences?

To avoid director disqualification, directors should ensure timely and accurate filing of annual accounts, annual returns, and notifications of changes to Companies House. Regular compliance checks and seeking professional advice from Francis Wilks & Jones can help maintain adherence to statutory obligations and prevent breaches that could lead to disqualification. We know many good accounting practices across the country and are happy to recommend them to you.

What happens to a company if its director is disqualified?

If a director is disqualified, the company must appoint a new director to replace them. The disqualified director must cease all activities related to the management of the company unless they have permission from the court to carry on. Failure to comply with disqualification terms can result in further legal consequences and even imprisonment. Our team at Francis Wilks & Jones can assist in navigating these transitions smoothly.

How can Francis Wilks & Jones help with disqualification proceedings?

At Francis Wilks & Jones, our experienced lawyers provide expert guidance on statutory obligations, helping directors avoid breaches and potential disqualification. If prosecution occurs, we offer very good defence assistance throughout the entire process.

The disqualification process often begins with initial inquiries from the Insolvency Service. These inquiries can arise from various triggers, such as:

• A review by the Insolvency Service of the company which went into liquidation. The do this on every liquidation and as part of this will look at the conduct of its directors.
• Complaints from creditors, employees, or other stakeholders can lead to inquiries.
• The report by the company liquidator (known as the D report) which can highlight issues with a director’s conduct that needs further review.

During this stage, the Insolvency Service gathers preliminary information about the director’s conduct and the company’s affairs. It is essential to seek expert advice at this early stage to avoid making potentially damaging statements.

Following initial inquiries, the Insolvency Service may issue a questionnaire to the director. This questionnaire is a formal request for information about the director’s actions and decisions.

• Purpose. To obtain detailed information about the director’s conduct and the circumstances leading to the company’s insolvency or other issues.
• Response. Directors must respond accurately and comprehensively to the questionnaire. Failure to do so can result in adverse inferences being drawn.

It is critical to avoid common mistakes when responding to these questionnaires. Directors may inadvertently make statements that can be harmful to their case. Consulting our team can help ensure responses are accurate and strategically sound. Otherwise, fill these in wrong and not only do you miss the opportunity to get rid of the claim at an early stage, it might even increase the likelihood of a longer ban.

You can read more on our main Landing page about dealing with early enquiries by the Insolvency Service

Before issuing a Section 16 letter, the Insolvency Service may engage in further fact-finding and negotiations.

• Fact-finding. Additional information may be sought from various sources, including company records, third-party statements, and financial documents.
• Negotiations. The Insolvency Service may engage in discussions with the director to understand their perspective and what went wrong. They might even invite the director to a formal interview. If they do, we can represent you at the meeting and as they can be stressful experiences and directors can say the wrong thing under pressure.

During this stage, it is important to make effective representations and negotiate proactively to mitigate the risk of disqualification. Our team can help you do this.

The formal disqualification process commences with the issuance of a Section 16 letter by the Insolvency Service. This is a letter sent in accordance with section 16 of the Company Director Disqualification Act 1986 – hence the name.

• Content. The letter outlines the grounds for potential disqualification and the evidence supporting these allegations.
• Your Response. Directors have the opportunity to respond to the allegations, provide additional evidence, and make representations to the Insolvency Service. We highly recommend you seek legal advice before writing back to the Insolvency Service. Anything you say can be used later in evidence against you. Often directors respond with the best of intentions – but unfortunately make the matter much worse.

The Section 16 letter is a critical document in the disqualification process. Directors should seek immediate legal advice firm our team to help prepare a robust response and defend their position effectively.

After the Section 16 letter, there is a critical stage where directors can make representations and negotiate with the Insolvency Service.

Our team can help you in these negotiations and try to get the claim dismissed, or any period of undertaking reduced.

What triggers initial inquiries from the Insolvency Service?

Initial inquiries from the Insolvency Service can be triggered by various events, such as a company entering liquidation or administration, complaints from creditors or employees, or information provided by the company liquidator. These inquiries aim to gather preliminary information about the director’s conduct and the company’s affairs.

What is the purpose of the questionnaire issued by the Insolvency Service?

The questionnaire issued by the Insolvency Service is a formal request for detailed information about the director’s actions and decisions. It seeks to obtain comprehensive information about the director’s conduct and the circumstances leading to the company’s insolvency or other issues. Directors must respond accurately and comprehensively to the questionnaire.

What happens in the pre-Section 16 stage?

In the pre-Section 16 stage, the Insolvency Service engages in further fact-finding and negotiations. This may involve seeking additional information from various sources, including company records, third-party statements, and financial documents. The Insolvency Service may also engage in discussions with the director to understand their perspective and explore potential resolutions.

What is a Section 16 letter?

A Section 16 letter is a formal document issued by the Insolvency Service that outlines the grounds for potential disqualification and the evidence supporting these allegations. It has to be sent as otherwise a formal legal claim cannot be started, Directors have the opportunity to respond to the allegations, provide additional evidence, and make representations to the Insolvency Service.

What can directors do after receiving a Section 16 letter?

After receiving a Section 16 letter, directors can submit written representations to refute the allegations or mitigate their conduct. There may also be opportunities for negotiations to resolve the matter without formal court proceedings, such as agreeing to undertakings. Seeking professional legal advice is crucial at this stage to navigate the process effectively.

What are the potential outcomes of the pre-litigation stages?

The potential outcomes of the pre-litigation stages include the resolution of the matter without formal court proceedings, such as agreeing to undertakings or the issue of a disqualification order. The outcome depends on the director’s conduct, the strength of the evidence, and the effectiveness of the representations made to the Insolvency Service.

What are the risks of not seeking legal advice during the pre-litigation stages?

Not seeking legal advice during the pre-litigation stages can result in missed opportunities to refute allegations, mitigate conduct, and negotiate favourable resolutions. Without professional guidance, directors may inadvertently provide incomplete or inaccurate responses, leading to adverse inferences and a higher risk of disqualification.

How long do the pre-litigation stages typically last?

The duration of the pre-litigation stages can vary depending on the complexity of the case and the efficiency of the fact-finding and negotiation processes. It generally involves several months of information gathering, response preparation, and discussions. Timely and thorough preparation, with legal counsel’s assistance, can help expedite the process. It is important to know however that the Insolvency Service has up to 3 years from the date of the company liquidation to bring a legal claim

Can the pre-litigation stages be avoided?

The pre-litigation stages are a crucial part of the disqualification process and cannot typically be avoided. However, directors can take proactive steps to maintain compliance with statutory obligations, seek early legal advice, and address any issues promptly to mitigate the risk of disqualification.

How can Francis Wilks & Jones assist in the pre-litigation stages?

At Francis Wilks & Jones, our lawyers provide expert guidance on responding to inquiries and questionnaires, ensuring compliance with legal requirements. We represent directors in negotiations with the Insolvency Service and help make compelling representations. Additionally, we develop strategic approaches to mitigate potential disqualification risks and protect directors’ interests.

Director disqualification can have severe implications for any individual, but especially if you are involved as a director or in the management of an existing business. Often directors get themselves back on their feet, only to find the threat of disqualification looming over them. Or it can put a block on career advancement or the offer of a new job.

But there are ways to mitigate its impact. This section explores strategies to reduce the period of a disqualification ban, apply for court permission to act as a director despite disqualification, and other relevant processes.

Section 17 of the CDDA 1986 allows disqualified directors to apply for court permission to remain acting as a director despite disqualification.

• Criteria. The court considers various factors, including the nature of the disqualification, the director’s conduct, and the potential impact on the business.
• Process. The application process involves submitting detailed evidence and representations to the court.
• Our track record. We have been doing these applications since 2002 – and boast a 100% success rate stretching back over 20 years. We also hold the record for the greatest number of companies permitted in one application for a single director – seventeen.
• At Francis Wilks & Jones, our friendly and trusted lawyers provide expert legal advice, crucial for navigating the application process and increasing the chances of success.

The rules relating to section 17 applications are strict. But with our fabulous team, we have helped many directors get back on their feet and carry on in business. To read more about this subject matter – read our specialist guide on how to remain a director despite disqualification.

Section 8A of the CDDA 1986 provides a mechanism for directors to apply to set aside or vary a disqualification undertaking.

• Grounds for application. Applications can be made on various grounds, such as new evidence or changes in circumstances.
• Procedure. The process involves submitting a formal application to the court, supported by evidence and legal arguments.
• Expert guidance. Our team can help prepare the necessary witness statement evidence to help win these cases at court.

These applications are not easy. They require a specific set of circumstances to effectively “go behind” the undertaking which was signed off.  As part of our advice to directors either facing a ban or already disqualified, we can review the circumstances of your case and see if Section 8A is relevant to you.

How can the impact of director disqualification be mitigated?

The impact of director disqualification can be mitigated through strategies such as applying to reduce the disqualification period, seeking court permission to act as a director under Section 17 of the CDDA 1986, and applying to set aside or vary a disqualification undertaking under Section 8A of the CDDA 1986.

What is the process for applying for court permission?

The process involves submitting a detailed application to the court, including affidavit evidence about what went wrong before, details of the new company, its structure, set up and safeguards in place to protect the public. Our team has a 100% success rate in these claims going back over 20 years. Legal advice from Francis Wilks & Jones is crucial to navigate this process effectively.

How can a disqualification ban be reduced?

A disqualification ban can be reduced only if the strict conditions in section 8A of the CDDA 1986 are met. Engaging with our experienced legal team can significantly improve the chances of a successful application.

What are the chances of success for these applications?

For section 17 applications for permission to remain a director, we will always be upfront with you. If we think your claim will not meet the required threshold, we will tell you early on. In terms of the cases we have done, we have a 100% success rate going back to 2002. We are genuine experts in this area. To read more about this subject matter – read our specialist guide on how to remain a director despite disqualification.

What is Section 8A of the CDDA 1986?

Section 8A of the CDDA 1986 allows disqualified directors to apply to vary a disqualification undertaking downwards. Applications can be made on grounds such as new evidence or changes in circumstances. The process involves submitting a formal application to the court, supported by evidence and legal arguments. They are not easy applications to make and are usually defended vigorously. But they can succeed and we are happy to help discuss this possibility with you.

What are the financial implications of disqualification?

Disqualification can have significant financial implications, including loss of income, legal costs, and potential compensation orders. Reducing the disqualification period or obtaining court permission to act as a director can mitigate these financial impacts. Expert legal advice from our team can help you maximise your chances of success.

Can disqualified directors still be involved in business activities?

Disqualified directors can apply for court permission under Section 17 of the CDDA 1986 to act as a director despite disqualification. The court assesses the necessity of the director’s involvement and the potential impact on the business. Successful applications allow disqualified directors to continue their business activities legally. But without permission, then former directors cannot get involved in the management of a company – and if they do, they risk imprisonment.

What are the common reasons for setting aside a disqualification undertaking?

Common reasons include new evidence that was not available during the original proceedings, changes in circumstances, and procedural errors. Applications to set aside a disqualification undertaking require strong evidence and compelling legal arguments, making expert legal advice crucial.

How long does the section 17 application process take?

The duration of the application process varies depending on the complexity of the case and the court’s schedule. But they can be turned around quickly – often in a few weeks. Early preparation and legal support can help expedite the process and we often advise directors on these applications and when to make them as part of the overall strategy of a case.

Directors are required to adhere to several statutory duties under the Companies Act 2006, including:

1. Section 113: Keeping a register of members.
2. Section 114: Making the register available for inspection.
3. Section 162: Keeping a register of directors.
4. Section 165: Keeping a register of directors’ residential addresses.
5. Section 167: Notifying the registrar of changes in directors.
6. Section 275: Keeping a register of secretaries.
7. Section 276: Notifying the registrar of changes in secretaries.
8. Section 386: Keeping accounting records.
9. Section 388: Knowing where and for how long accounting records should be kept.
10. Section 441: Filing annual accounts with the Registrar of Companies.
11. Section 854: Making annual returns.
12. Section 860: Registering charges.
13. Section 878: Registering charges for companies registered in Scotland.

Failure to comply with these statutory duties can result in severe penalties, including disqualification.

Non-compliance with statutory duties can lead to:

• Legal action. Directors may face legal proceedings for failing to meet statutory obligations.
• Disqualification. Persistent non-compliance can result in director disqualification under the Company Directors Disqualification Act 1986 (CDDA 1986).
• Financial penalties. Directors can be fined for breaches of statutory duties.
• Reputational damage. Non-compliance can harm a director’s professional reputation and future career prospects.

Maintaining statutory compliance is crucial for:

• Legal protection: Ensures directors are protected from legal actions and penalties.
• Business reputation: Upholds the company’s reputation and credibility in the business community.
• Financial health: Avoids unnecessary fines and financial penalties that can impact the company’s financial stability.

At Francis Wilks & Jones, we provide expert legal advice to ensure directors meet their statutory obligations. Our friendly and trusted lawyers offer comprehensive support, including:

• Statutory compliance audits: If you need the help of other third party professionals such as accountants or tax advisers, we can give you some recommendations of trusted firms we have worked with over the last 20 years. They can help ensure that all ongoing statutory requirements are met.
• Legal advice: We can provide guidance on specific statutory duties and how to comply with them.
• Representation: We can assist directors facing legal proceedings or disqualification due to non-compliance.

What are the key statutory responsibilities of directors?

Directors must comply with various statutory duties under the Companies Act 2006, including keeping registers of members, directors, and secretaries, maintaining accounting records, filing annual accounts, and registering charges.

What are the consequences of non-compliance with statutory duties?

Non-compliance can lead to legal action, director disqualification, financial penalties, and damage to a director’s reputation. Persistent breaches can result in severe penalties and director disqualification under the CDDA 1986.

Why is statutory compliance important for directors?

Statutory compliance ensures legal protection for directors, maintains the company’s reputation, and avoids financial penalties. It is crucial for the smooth operation and credibility of the business.

What steps can directors take to ensure statutory compliance?

Directors should maintain accurate records, file required documents on time, regularly review statutory obligations, and seek professional advice when necessary. Engaging legal counsel can help ensure all duties are met.

What is the role of a company secretary in statutory compliance?

A company secretary plays a crucial role in ensuring statutory compliance by maintaining company records, filing required documents, and advising directors on their legal obligations. They help ensure that the company meets all statutory requirements.

Can non-compliance with statutory duties lead to criminal proceedings?

Yes, in some cases, failure to comply with statutory duties can lead to criminal proceedings under the Companies Act 2006. Directors may be prosecuted and face severe penalties, including disqualification and imprisonment.

What are the common challenges in maintaining statutory compliance?

Common challenges include keeping up with changing regulations, maintaining accurate records, ensuring timely filings, and understanding complex legal requirements. Seeking professional advice can help navigate these challenges effectively.

How often should statutory compliance audits be conducted?

Statutory compliance audits should be conducted regularly, at least annually, to ensure all statutory obligations are met. More frequent audits may be necessary for larger or more complex companies.

What are the benefits of engaging professional services for statutory compliance?

Engaging professional services ensures expert guidance, reduces the risk of non-compliance, and helps maintain the company’s reputation. It also allows directors to focus on core business activities while ensuring all legal obligations are met.

How can Francis Wilks & Jones assist with statutory compliance?

Francis Wilks & Jones provides expert legal advice and support to ensure directors meet their statutory obligations. Our services include statutory compliance audits, legal advice on specific duties, and representation in legal proceedings.

Public interest is all pervasive in the legal framework of director disqualification proceedings.

It is there to help uphold corporate governance standards and protect the public from directors whose conduct is deemed unfit. This concept ensures that directors are held accountable for actions that could harm the company’s stakeholders or the broader economy.

Whilst public interest is something that is always taken into account in disqualification claims, there are specific circumstances where the Secretary of State itself can wind up a company “in the public interest” and often after that, a disqualification claim will follow.

Public interest proceedings often begin with investigations by the Insolvency Service or other regulatory bodies. If substantial evidence of misconduct is found, a public interest winding up petition may be filed. This process involves:

• Investigation. Detailed inquiry into the director’s actions and company operations.
• Winding up petition filing. Submission of a winding up petition to the court based on the investigations.
• Court hearing the Judge will review of the evidence and decide if the company should be wound up in the public interest – to prevent directors from causing further harm and to maintain public confidence in the business environment.

Public interest winding up petitions are serious legal actions that close down companies whose activities are deemed contrary to the public good.

Public interest winding up petitions can often lead to disqualification claims being made against the former directors because of the severity of the allegations made and the harm to the public. Often disqualification orders are sought in the highest bracket of 11-15 years.

Directors may be disqualified on public interest grounds for various reasons, including:

• Fraudulent activities. Engaging in deceitful practices to mislead stakeholders.
• Gross mismanagement. Failing to manage the company effectively, leading to significant losses.
• Harm to public confidence. Actions that undermine trust in the business sector.

Classic examples often involve investment companies taking advantage of elderly customers, often in areas such as land banking, mining or gems, carbon credits, wine or highly risky financial products.

Directors facing public interest winding up petition disqualification can still defend the claim and we have done so many times. Areas we can help with include

• Getting involved in the public interest winding up proceedings. If there is still time and the company has not been wound up, fighting the actual winding up proceedings can be very useful as if the company is not wound up, a disqualification order will not be allowed
• Review of all the investigation evidence if the company has been wound up. Often, if the winding up proceedings were not defended, there is a chance to review the claims and respond at disqualification stage.
• Evidence submission. We can collate an draft all necessary evidence to defend the claim – or seek a lower period of disqualification. Presenting comprehensive evidence to counter allegations of misconduct.

Recent statistics from the Insolvency Service highlight the prevalence and impact of public interest winding up petitions and disqualifications. Here is a summary of the latest data:

This data shows a rising trend in the use of public interest petitions to disqualify directors, reflecting a stricter enforcement environment.

What is the public interest in director disqualification cases?

The public interest in director disqualification cases involves protecting the public from directors whose misconduct could harm stakeholders, undermine public confidence in the business sector, or lead to significant financial losses.

How is public interest determined in disqualification proceedings?

Public interest is determined by assessing the severity and impact of a director’s misconduct, including the harm caused to stakeholders, the legal breaches involved, and whether the behaviour is part of a continuous pattern.

Why is public interest a key factor in director disqualification?

Public interest is a key factor because it ensures that directors are held accountable for actions that could negatively affect the broader economy, protect stakeholders, and maintain public trust in corporate governance.

Can public interest influence the outcome of a disqualification case?

Yes, public interest considerations are central to any director disqualification claim. To put another way – even if there has been misconduct by a director, it might still not be in the public interest to disqualify them.

What are common reasons for public interest disqualification?

Common reasons include fraudulent activities, high risk financial investments, targeting of the elderly and land banking schemes.

How can directors defend against public interest disqualification?

Directors can defend against public interest disqualification by seeking expert legal advice from our team who will quickly review the evidence with you and fight the winding up claim and / or the director disqualification proceedings. Read more about public interest winding up petition disqualification on our main landing page

What are the implications of public interest disqualification for a director’s career?

Public interest disqualification can severely impact a director’s career, leading to reputational damage, financial penalties, and restrictions on future directorships.

What is the role of the Public Interest Unit in disqualification cases?

The Public Interest Unit investigates and prosecutes cases where directors’ actions are deemed contrary to the public good, leading to disqualification and other penalties.

Are there any recent trends in public interest disqualification cases?

Recent trends indicate a rising use of public interest winding up petitions and stricter enforcement actions, reflecting a focus on maintaining high standards of corporate governance.

Director disqualification cases can incur various legal costs depending on the complexity and stage of the proceedings. At FWJ, our team can talk you through these costs and what we can do to help minimise them whilst still achieving a successful outcome for you.

Costs typically include:

• Pre-action costs. These are legal fees incurred during the initial stages, such as legal consultations, dealing with early enquiries from the Insolvency Service, help with questionnaires, responding to section 16 letters and dealing with voluntary undertakings.
• Litigation costs. If a formal claim is issued, our costs involve review of the claim, taking instructions, preparing detailed witness statement evidence, and in some cases, preparation for, and attendance at, trial.

Understanding these costs is crucial for directors to manage their financial resources effectively throughout the disqualification process. We appreciate everyone has a different capacity to pay legal fees, so we very early on work with you to understand any budgetary constraints and how we can achieve the best possible outcome based on your ability to fund the claim.

Directors facing disqualification have several funding options to consider for their legal defence:

• Self-funding. Directors can use personal funds or company resources to cover legal expenses.
• Insurance. Some directors may have insurance policies that cover legal defence costs, such as Directors and Officers (D&O) liability insurance.
• Third-party funding. External funding sources, such as litigation funding firms, might provide financial support although it isn’t common in claims of this nature

Exploring these options with helps find the most suitable and sustainable way to deal with the claim you are facing

Managing legal costs effectively is vital to avoid financial strain during disqualification proceedings. Here are some strategies or ideas we have found useful in the last 20 years:

• Seeking early legal advice. Engaging experienced solicitors early can help in identifying the best defence strategy and avoiding unnecessary costs. Just ignoring a claim and hoping it will go away only ever means increased costs.
• Budgeting and planning. We work with all clients to create a detailed costs breakdown and budget for any claim – based on our experience of doing this work for over 20 years
• Negotiation and settlement. In some cases, negotiating a settlement or undertaking can be more cost-effective than pursuing lengthy litigation. We can advise you on this.
• Regular cost reviews. We will provide regular costs updates at intervals of your choosing – to help you budget your claim.

Recovering legal costs

If a director successfully defends against disqualification, he / she will be entitled to recover the majority of the legal expenses they have incurred.  We can talk you through this but it will either be where you are successful at trial or if the Claimant has discontinued the claim part way through the legal proceedings.

What are the typical legal costs associated with director disqualification cases?

Typical legal costs for director disqualification cases vary depending on the complexity and specifics of each case.

Pre-action costs generally include initial consultations with legal experts, drafting responses to inquiries, and preparing for potential litigation. Trial costs encompass legal representation, court filing fees, barristers fees and potentially the costs of expert witnesses.

It’s crucial for directors to understand these potential expenses early on to manage their financial resources effectively. It is one of the first things our team will do with you.

Are there funding options available for defending against disqualification?

Traditional litigation funding isn’t normally available for these types of defended director claims.

However, we always recommend a director looks to see if there was any Directors and Officers (D&O) liability insurance in place at the former company as they might be covered on this.

How can legal costs be managed effectively?

We have 20+ years working through cases with clients. We set clear costs estimates at the outset and stick to these. If something unexpected happens in a case, we will advise on whether this will affect the costs estimate . We will always be as transparent as we can on the subject of costs. Working closely with our legal team will  ensure that you receive the best cost management possible.

Can the costs be recovered if the defence is successful?

Yes, you will recover your costs if you win at trial or the Claimant drops their claim after legal proceedings have been issued.  Costs will be subject to assessment and as a rule of thumb, you wil get back around 70% of your legal costs.

What are the costs involved in pre-action stages?

The pre-action stages involve several key costs. These include legal consultations to understand the case and potential defence strategies, drafting and responding to inquiries from regulatory bodies, and preparing initial documents for potential litigation. They can also cover off the costs of negotiating a voluntary undertaking.

What are the costs up to the disqualification trial at court?

Costs up to the disqualification trial at court can be substantial, especially if the case goes all the way to a full trial. They include continuous legal representation, production of witness statements, instructing the barrister to attend hearings and preparation and attendance at trial.

What are the costs of a disqualification undertaking?

The costs of a disqualification undertaking involve legal fees for negotiating and drafting the undertaking. This option is more cost-effective than full litigation, but it requires careful consideration and legal advice to ensure the terms of the undertaking are fair and reasonable.

How does the complexity of the case affect legal costs?

The complexity of a director disqualification case significantly impacts legal costs. More complex cases, involving extensive evidence, multiple allegations of misconduct, or complicated legal arguments, typically incur higher costs. This is due to the increased time and resources required for thorough legal research, preparation, and representation. Simpler cases with fewer issues and less evidence generally result in lower legal costs. Directors should be aware of these factors and work with their legal team to manage costs effectively.

Are there any cost-saving measures for directors?

Yes, there are several cost-saving measures that directors can implement.

Seeking early legal advice can help avoid unnecessary costs by identifying the best defence strategy from the start. Maintaining open communication with our legal team ensures that all actions are necessary and cost-effective. Regularly reviewing legal costs and making adjustments as needed can also help keep expenses under control. Working with experienced solicitors at Francis Wilks & Jones, will provide you with all the help you need.

Acting as a director while disqualified is a serious offence under the Company Directors Disqualification Act 1986 (CDDA 1986). If a disqualified director is found to be acting in this capacity, they can face significant penalties, including fines and imprisonment. Additionally, any decisions or actions taken by the disqualified director could be challenged in court, and they might be held personally liable for the company’s debts.

When a director is disqualified, they are legally prohibited from acting as a director of any company, being involved in the management of any company, or forming, marketing, or running a company. The period of disqualification can range from 2 to 15 years, depending on the severity of the misconduct. During the disqualification period, the director’s name is entered into the Companies House register of disqualified directors, making the disqualification public.

Yes, a disqualified director can still hold shares in a company. However, they cannot be involved in the management or running of the company. Holding shares does not equate to participating in the company’s day-to-day operations or making managerial decisions, which are prohibited during the disqualification period.

A disqualified director can operate as a sole trader as this doesn’t not involve a limited company or LLP

No, a disqualified director is also prohibited from acting as a company secretary. The role of a company secretary is considered part of the company’s management, and disqualified directors are barred from holding any positions that involve participation in the management of a company.

A disqualified director can technically attend board meetings but cannot be involved in the decision making processes. But it is a fine line between being asked to comments by other directors and being seen to be involved in the management of the business. We would recommend taking legal advice if you are asked to do this.

A disqualified director can be a member (ie shareholder) of a Limited Liability Partnership (LLP), but they cannot participate in its management. The same restrictions that apply to limited companies apply to LLPs, prohibiting disqualified directors from holding positions of influence or making management decisions.

Director disqualification significantly impacts future business ventures. Disqualified individuals are barred from holding directorships or being involved in the management of any company during their disqualification period. This restriction can limit their ability to pursue new business opportunities and affect their professional reputation. Additionally, the disqualification is public, which can further hinder future business endeavours.

No, a disqualified director cannot start a new company during their disqualification period. They are prohibited from forming, marketing, or running any new or existing company unless they have specific permission of the court. Attempting to do so can result in severe penalties, including fines and imprisonment.

Disqualified directors have limited options for rehabilitation. They must serve their disqualification period, after which they can apply for the disqualification to be lifted. In some cases, directors may apply for a court order under Section 17 of the CDDA 1986 to allow them to act as a director despite the disqualification. Successful rehabilitation also involves demonstrating that they have learned from their past mistakes and can manage a company responsibly in the future. Read more about how to stay a director despite disqualification in our separate guide.

Director disqualification primarily affects activities within the jurisdiction where the disqualification was issued. However, it can have international repercussions, especially in countries that recognize UK disqualification orders. Disqualified directors may face restrictions on forming or managing companies in other countries, and their professional reputation can be adversely affected, impacting international business opportunities.