A director who has been disqualified, or who has given a disqualification undertaking, needs to be very careful before becoming involved in any new or successor company. A phoenix company is not automatically unlawful, and disqualification does not usually prevent a person from all work or business activity. However, the restrictions on direct and indirect involvement in company management are broad.
This issue often arises after an insolvent liquidation, where a new company continues a similar trade, uses similar branding, employs the same staff, or deals with the same customers. If a disqualified person is involved behind the scenes, the risk is not just a technical problem. It can create criminal exposure, personal liability and further director disqualification risk.
This page explains what a disqualified director can and cannot do, why phoenix companies are a sensitive area, and when a court application may be needed before the person has any management role in the new business.
What does director disqualification prevent?
Director disqualification restricts a person from acting as a director and from taking part, directly or indirectly, in the promotion, formation or management of a company unless the court gives permission. The restriction can apply to a company registered in the UK and, in some circumstances, to an overseas company with UK connections.
- The practical effect is wider than simply being removed from Companies House as a registered director.
- A disqualified person may still breach the ban if they continue making management decisions, controlling the business through others, negotiating as the real decision-maker, directing company strategy, or acting in a way that shows they are still part of management.
For directors who want to understand the wider consequences of a ban, our guide to the consequences of disqualification explains how the restriction can affect future business activity.
Can a disqualified director work for a phoenix company?
A disqualified person may be able to work for a company in an employed or non-management role.
- The difficulty is that a phoenix company often carries a higher risk of informal control.
- If the new business has the same trade, customers, assets, staff or brand as the failed company, the Insolvency Service, HMRC or a liquidator may look closely at who is really making decisions.
A role described as consultancy, sales support, operations, business development or unpaid assistance may still create risk if the person is effectively managing the company. The label used in an agreement is less important than the reality of what the person does.
Where the new company is using the same or a similar name, there may also be a separate issue under the prohibited company name rules. Those rules sit alongside the director disqualification regime and can create personal liability even if the director is not formally appointed to the new company.
What counts as being involved in company management?
Management involvement is fact-specific. It may include
- deciding company policy,
- negotiating key contracts,
- authorising payments,
- controlling staff,
- dealing with suppliers,
- managing customer relationships,
- directing another director, or
- presenting oneself as the person in charge.
The risk is particularly high where the disqualified person was the driving force behind the old company and remains central to the new company. Even if a spouse, family member, employee or business associate is appointed as the registered director, the authorities may still investigate whether the disqualified person is acting as a shadow director or de facto director.
This is why advice should be taken before a disqualified person helps with a successor business. It may be possible to define a limited role safely, but only if the role is genuine, documented and kept away from management control.
Why are phoenix companies a particular risk for disqualified directors?
Phoenix companies attract scrutiny because they involve continuity after insolvency. That continuity may be perfectly legitimate if the business has been properly purchased, assets have been independently valued, creditors are not misled and the section 216 Insolvency Act rules have been followed.
The risk increases where the facts suggest that the old business has simply carried on through a new company while creditors, HMRC or other stakeholders have been left behind. The position becomes more serious if a person who is already disqualified appears to be directing that continuation.
A recent FWJ case-led update on a director who ignored a director ban and ran a phoenix company shows why informal management can be treated as a serious issue, particularly where HMRC debts are involved.
Does it matter if the disqualified person is not formally appointed?
Yes. A disqualified person does not need to be registered as a director to breach the restriction.
The central question is often whether they were involved in the promotion, formation or management of the company.
- A person who controls the company through another director, gives instructions that are followed, or effectively makes management decisions may still be at risk.
- This can be particularly difficult in owner-managed businesses, where roles are informal and family members or trusted colleagues may help each other without clear written boundaries. A director who has been banned should not assume that staying off the Companies House register is enough.
If the Insolvency Service is asking questions about informal control, our page on Insolvency Service investigations explains how early enquiries can develop into formal director disqualification issues.
Can a disqualified director own shares in a phoenix company?
Share ownership is not the same as acting as a director. However, a shareholding can still create practical risk if the shareholder uses that position to control the company or influence management decisions. The more active the person is, the greater the risk that their role may be viewed as management involvement.
For example, a passive minority shareholding may be very different from a controlling shareholding where the disqualified person decides strategy, approves major decisions or gives instructions to the appointed directors. The factual position matters more than the job title or share certificate.
What happens if a disqualified director breaches the ban?
Breach of a disqualification order or undertaking can lead to criminal penalties and further civil consequences. It may also expose the individual to personal liability for company debts in some circumstances. Where the breach is linked to a phoenix company, there may also be parallel issues under section 216 and section 217 of the Insolvency Act 1986.
The same facts may create several risks at once. A director may face allegations of
- acting while disqualified,
- prohibited name misuse,
- HMRC phoenixism, or
- further disqualification misconduct.
Those risks need to be assessed together rather than treated as separate technical points.
If a formal letter has been received, the response should be handled carefully. Our guide to section 16 letters explains how director disqualification proceedings commonly move from investigation to threatened court action.
Can a disqualified director get permission to act?
A disqualified person can apply to court under section 17 of the Company Directors Disqualification Act 1986 for permission to act as a director or to be involved in the promotion, formation or management of a named company. Permission is not automatic. The court will usually want to understand why permission is needed, what role the person will perform, what protections will be in place, and whether the public is adequately protected.
This can be important for phoenix company situations. If the business genuinely needs the individual’s skills or relationships, a controlled section 17 CDDA application may be safer than informal involvement. The application should be prepared carefully because the proposed role, company structure, financial controls and reporting arrangements can all affect the court’s view.
FWJ also has a dedicated service page on court permission to remain a director despite disqualification for directors who need practical advice on an application.
What evidence can help show that the person is not managing the company?
Where a disqualified person has a limited role in a business, evidence is important. The company should be able to show who makes decisions, who signs contracts, who authorises payments, who manages staff, and who controls day-to-day trading.
Useful evidence may include
- board minutes,
- employment or consultancy terms,
- delegated authority documents,
- email records,
- bank mandate records,
- management accounts,
- decision logs; and
- correspondence with customers or suppliers.
The purpose is not to create artificial paperwork. It is to ensure that the reality of the role matches the legal position.
If HMRC is involved, directors should also review whether the facts could give rise to HMRC phoenixism and joint and several liability notices, particularly where there has been repeated insolvency or unpaid tax across connected companies.
What should a disqualified director do before becoming involved?
The safest point to take advice is before any role begins. That allows the proposed structure to be reviewed before documents are signed, bank mandates are created, trading starts or customers are told who is running the business. It also allows the director to consider whether court permission is needed.
Where the person is already involved, the priority is to understand the factual position quickly and calmly. That usually means reviewing the disqualification order or undertaking, the person’s role in the new company, the use of any similar name, the old company’s insolvency history, and any HMRC or liquidator concerns.
If the concern relates mainly to tax debts, our page on HMRC claims against directors explains other routes by which HMRC may seek recovery or protection.
How FWJ can help you
FWJ advises directors on phoenix company risk, acting while disqualified, section 17 applications, prohibited name rules and director disqualification proceedings. We can review the facts, identify the immediate risks, help prepare a controlled response to the Insolvency Service or HMRC, and advise whether court permission should be sought.
If you are concerned that a disqualified director may already be involved in a phoenix company, early advice can help clarify the position and reduce avoidable risk. The key is to deal with the facts carefully, rather than assuming that the issue cannot be corrected or explained.
