Disqualification for persistence breaches of Companies Act 2006

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

A director we defended against a disqualification claim

The Companies Act 2006 came into force as essentially an update and modernisation of the companies legislation, which had last been substantively updated in the mid-1980s.

• The Companies Act 2006 (and pre-existing/ancillary legislation and secondary regulations imposed by the Secretary of State) regulates almost all corporate governance aspects relevant to registered and unregistered companies trading in the UK, in terms of national interest, public accountability and prevention of fraud or any other prejudice to stakeholders.
• The Companies Act 2006 imposes a number of requirements on companies (and directors of companies), the breach of which can lead to a criminal prosecution. This complex legal framework imposed on companies is for directors of those companies to manage and adhere to, the failure for which can mean the director is prosecuted.

Most commonly, it is for the Registrar of Companies to regulate and pursue directors and the companies for such breaches.

Common examples of breaches

Perhaps the most common examples of failures by SME companies to adhere to the companies legislative requirements is the failure to file statutory Financial Accounts and Confirmation Statements (or Annual Returns as they used to be) within the required statutory period.

• a company’s financial accounts (whether audited, unaudited or abbreviated) must be filed with the Registrar of Companies (or Companies House) by the end of 9 months after the company’s financial year-end;
• this grace period of 9 months allows a company to prepare its records and draft the accounts in the appropriate format so that they are useable by stakeholders in the company and the general public, a requirement that enables the company to benefit from its limited liability status whilst being accountable.

A Confirmation Statement has to be filed at Companies House by the anniversary date of its incorporation (or the anniversary following the last document filed).

Offences

If either the company’s Financial Accounts or Confirmation Statement are not filed within the statutory period then an offence may be committed, which can be prosecuted in a Magistrates court in England & Wales.

Almost all prosecutions are brought in Cardiff Magistrates court, which is the city where the Registrar of Companies is located. In addition, the company itself may be prosecuted for such a failure and subject to a fine for such a failure.

Notice of prosecution

The Registrar of Companies will not immediately move to prosecute a director/the company for such a failure and will provide ample notice of the outstanding documents and an opportunity to remedy matters.

• most commonly, in our experience, it is because of some sort of accounting issue or business-related problem that causes a delay in filing such documents and in such circumstances engagement with Companies House early is very important;
• however, if such notices are ignored or remedial action is not taken, then the prosecuting solicitor will initiate proceedings to prosecute all directors of the defaulting company on behalf of the Registrar of Companies.

Director disqualification

Under Sections 3 and 5 of the Company Directors disqualification Act 1986 the court may make a disqualification order against a director where it appears to be that the director in question has persistently been in default in relation to provisions set down in the Companies Act 2006. These require a director to be responsible for filing any return, account or other document to be filed with or delivered to the Registrar of Companies.

In order for a director disqualification order to be made under this section, the application which is made to the court must show that the person has been persistently in default in relation to such provisions, as set out in the Companies Act 2006, and be conclusively shown that in the 5 years ending with the date of the application he has been adjudged guilty (whether or not on the same occasion) of 3 or more defaults in relation to the provisions. The maximum period of disqualification under these sections of the Company Directors Disqualification Act 1986 is 5 years.

Can this be avoided?

While we would never suggest that a failure to comply with these statutory requirements is excusable, in some circumstances you may have reasonable grounds for failing to comply with your statutory duties.

While there are no exceptions provided for a default under the companies legislation (for good reason), unavoidable circumstances, if properly set out and explained to the prosecuting solicitor (together with rapid steps to remedy the situation) may persuade the Registrar of Companies not to seek a prosecution and/or disqualification of the directors.

Although it depends on the circumstances, examples of such exceptional circumstances may be

• a severe illness of a director in a small owner-managed company; or
• criminal behaviour by third parties.

However, it is dependent on you and your company’s circumstances.

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At Francis Wilks & Jones we are able to advise on any risk you or your business may face as a result of being subject to such circumstances or being faced by a disqualification claim. Please call any member of our disqualification team for help today.

I was greatly impressed with the commercial, tactical and technical ability of the team at FWJ. They quickly got to grips with a complex set of facts and, through their hard work, had the proceedings against me dropped and a significant proportion of my legal fees repaid. I couldn’t recommend them highly enough

A director we defended against a disqualification claim and other claims brought by a liquidator