A recent Insolvency Service case is a reminder that directors cannot take a passive role in company management
The Insolvency Service has announced a four-year director disqualification against a director linked to companies associated with the so-called Atherton scheme.
According to the official GOV.UK press release, the director gave a disqualification undertaking after the Insolvency Service concluded that she had failed to exercise proper control over the affairs of two companies that were later wound up in the public interest.
The case is another example of the increasing scrutiny placed on directors connected to distressed businesses, restructuring arrangements and insolvency-related schemes. It also highlights an important legal point that is often misunderstood. Under the law of England and Wales, accepting a directorship carries ongoing legal responsibilities, even where the director says they were not involved in the day-to-day operation of a business.
What was the Atherton scheme said to involve?
The GOV.UK release describes the Atherton scheme as a corporate rescue model in which directors of financially distressed businesses were encouraged to sell their companies for a nominal sum rather than placing them into formal insolvency procedures.
The two companies connected to the case were wound up in the public interest in 2024.
Public interest winding up proceedings are typically reserved for situations where the authorities believe company activities raise wider concerns affecting creditors, the public or the integrity of the corporate system. FWJ regularly advises directors and businesses facing Insolvency Service investigations and public interest winding up proceedings.
Why can directors face disqualification even if they are not running the business day to day?
One of the most important aspects of director disqualification law is that directors cannot avoid responsibility simply by taking a limited or passive role.
Under the Company Directors Disqualification Act 1986, directors are expected to exercise independent judgment, maintain oversight of company affairs and ensure businesses operate lawfully and properly.
The Insolvency Service said the director in this case failed to exercise sufficient control over the companies and failed to ensure they were acting reasonably.
Cases of this nature often arise where directors:
- allow others to control company affairs without proper oversight
- fail to review company records or transactions
- do not properly understand the business model being operated
- continue acting despite warning signs of financial or regulatory risk
Directorship is not treated as a nominal position under English law. Once appointed, directors are expected to understand what the company is doing and how decisions affect creditors and stakeholders.
FWJ advises directors facing allegations of misconduct, unfit conduct and disqualification proceedings.
Why do insolvency and restructuring situations create additional director risk?
Where businesses encounter financial distress, director duties become increasingly important.
- As insolvency risks develop, directors must consider creditor interests carefully and ensure decisions are properly documented and justified. Transactions, transfers of assets and company restructuring arrangements may later be reviewed by insolvency officeholders or regulators.
- In some cases, investigators will examine whether directors allowed company structures to be used improperly or whether insufficient oversight enabled creditor harm to occur.
Importantly, insolvency itself does not automatically imply wrongdoing. Many directors become involved in rescue or restructuring efforts in good faith. However, once a company enters financial difficulty, governance failures and poor record keeping can quickly become more serious legal issues.
What practical lessons should directors take from this case?
The case is a useful reminder that directors should understand the businesses they are appointed to oversee and should remain actively involved in company management.
Directors should ensure they:
- understand the company’s financial position
- question unusual transactions or business models
- maintain proper records
- obtain professional advice where concerns arise
- avoid allowing third parties to operate without oversight
Early legal advice can often help directors address concerns before regulatory scrutiny escalates into formal disqualification proceedings or insolvency investigations.
Our team have been helping to defend directors for nearly 25 years. We can help you too.
Had a very extreme experience of other directors stealing substantial funds from my own company and threatening me with it. Came to FWJ and spoke to the team who correctly identified all the pros and cons of my situation, and very professionally outlined a plan to execute taking multiple factors into account between personal and company matters along with all the potential variables that could happen along the way. It was a highly complex and delicate situation, but FWJ really handled it very well putting a plan in place and is a credit to the firm, I would not hesitate to return in future. Thanks a lot FWJ!
Company director dealing with an internal dispute
