Director disqualification: reducing the period of a ban – 14 common questions answered

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1. Is it possible to reduce my disqualification period?

The answer is yes – but only in certain circumstances where the disqualification has commenced by way of an undertaking offered under section 1A of the Company Directors Disqualification Act 1986 (a “director disqualification undertaking”).

2. What are the statutory provisions dealing with the reduction of a disqualification period?

This aspect of the director disqualification regime is governed by section 8A of the Company Director Disqualification Act 1986.

Section 8A of the Company Director Disqualification Act 1986 states:-

• The court may, on application of a person who is subject to a disqualification undertaking -reduce the period for which the undertaking is to be in force, or provide for it to cease to be in force.
• On the hearing of an application, the Secretary of State shall appear and call the attention of the court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.

It is important to understand therefore that Section 8A of the Director Disqualification Act 1986 can only be used by people who have been disqualified by having given a voluntary disqualification undertaking.

3. How far can my period of disqualification be reduced?

For disqualification undertakings entered into following the insolvency of a company (under Section 7(2A) of the Company Directors disqualification Act 1986), it is important to understand that the court cannot vary a period of disqualification period below the statutory minimum – currently 2 years.

• however, as an alternative, if less than two years have passed since the director disqualification undertaking was entered into, an individual can apply under Section 8A(1)(b) of the Company Director Disqualification Act for it “to cease to be in force”;
• for all other disqualifications (CDDA 1986 section 2, CDDA 1986 section 8 and CDDA 1986 section 9B) a disqualification undertaking can be reduced to any period (but not nil, as the voluntary undertaking cannot be annulled or rescinded – see below).

4. Can this procedure be used to overturn my disqualification undertaking completely?

The answer is No.

This procedure will never enable an individual to rescind or annul a disqualification undertaking. It can only reduce the original disqualification period.

5. If it doesn’t overturn my disqualification undertaking, why would I make the application?

A successful application can lead to a person no longer being subject to disqualification order.

For example,

• if a person has “served” 7 years of a 9 years disqualification period, that person still has 2 years left to run before he/she can act as a director again;
• if that person makes a successful application under Section 8A of the CDDA 1986 and 2 or more years or more is “knocked off” the original 9 year period– the effect is that the original disqualification order has now expired as that person has already served 7 years of the disqualification period.

However as stated above, it is important to understand that this procedure will not have the effect of the original disqualification penalty never having existed in the first place.

6. Isn’t it more straightforward just to apply to court for permission to be a director if I now want to get back in to business?

There is the ability for a person to apply for permission from the court to act as a director despite having been subject to a disqualification order. This is allowed under certain circumstances by the director disqualification by section 17 of the Company Director Disqualification Act 1986.

We have 100% success rate in Section 17 CDDA 1986 applications dating back to 2002.

However, the courts are very reluctant to grant permission for a person to act as a director of a business if his/her original disqualification is over 8 years. Indeed, anything between 6-8 years is difficult.

There is also the difficulty that the Secretary of State is required by the court to raise public interest concerns and effectively acts to “vet” such applications. This can make the burden of satisfying the Secretary of State and the court very heavy and potentially expensive. Alternatively, an application under Section 8A of the CDDA 1986 is a more straightforward matter which is dependent on evidence, although great importance will still be placed on the secretary of State’s concerns by the court.

• therefore, if you find yourself disqualified for 8 years of more, your only option if you want to get back into business at director level is to try and get the original period reduced to a period where the court will not automatically refuse an application for permission to be a director.
• i.e, you need to aim to get the original period down to no more than 6 years if possible, to make a subsequent s.17 application have reasonable prospects of success, or less to ensure the disqualification period has now expired (dependent on the period of time served to date).

7. Can I challenge the original allegations referred to in the undertaking?

The answer is No.

Section 8A of the CDDA 1986 cannot be used to amend the reasons / schedule of misconduct cited (and agreed to) in the original undertaking and which gave rise to the disqualification. It is simply a mechanism to reduce the overall disqualification period where the undertaking may have been entered into under oppressive circumstances.

8. Is it possible to vary the original disqualification undertaking by agreement?

The answer is no.

It is not possible for an undertaking to be discharged or varied by agreement between the parties. It has to be something ratified by the court and the secretary of State has no discretion to authorise this, even if he agrees with the reduction sought.

9. What is the court’s general view on these applications?

Section 8A of the CDDA 1986 is not a well-trodden path in terms of legal applications.

The main case on the subject is called Re: INS Realisations Limited v Jonkler and Spencer-Jonkler. In that case

• the court made it clear that variation of a undertaking would only be permitted in “special circumstances”;
• the court was very clear that on the whole, it is reluctant to go behind the undertaking and didn’t want to be seen to be leaving the door open to disqualified directors to essentially circumvent the effect of a voluntary undertaking by then later applying to reduce the period it was given for
• it needs to be remembered that the courts are there to ensure that the public interest is protected pursuant to the disqualification regime and they do take this role seriously.

However, the legislation exists for a reason and subject to a satisfactory explanation of the grounds for seeking such a reduction, there is no reason why this should not be available to you.

10. On what grounds will a court reduce the original period of the undertaking?

The court may be willing to reduce the original period of disqualification on the following grounds:-

• where the consent of the person giving the original disqualification undertaking was in some way vitiated so that he/she never really consented into the entering of the undertaking. This section would cover, for example, undue influence, duress or mistake in signing the undertaking;
• some fundamental mistake was made and discovered after the undertaking was accepted;
• that new information has become available to the person who gave the undertaking that was not available to that person at the time when the undertaking taken was entered into;
• when a review of other case law relating to similar grounds for the original disqualification demonstrate that the original period offered by the Secretary of state was excessive;
• where the Secretary of State has acted in a deliberately oppressive manner in obtaining the undertaking.

11. What if I didn’t have or couldn’t afford proper legal advice at the time I gave the original undertaking?

In the Jonkler case mentioned above, the judge made it clear that this is something they will rarely take in to account – mainly due to the number of cases which would fall in to this category.

12. Is the reduction procedure complicated?

The application is relatively straightforward.

The main part is drafting affidavit evidence (ie written statements). These need to cover both the reasons for the original disqualification in detail and then set out the grounds why the original period should be reduced.

That evidence is served on the Secretary of State and it is likely it will then be referred to one of his panel solicitors to deal with. They may respond with their own written evidence or simply attend the hearing before the judge to make comment.

The length of the hearing will depend on the volume of evidence the judge has to consider. Normally however, you could expect the hearing to last no more than half to one day. You would need a barrister to attend the hearing to present the case to the judge and deal with the legal argument.

13. Does the court have to reduce the period?

The answer is No.

It might refuse to do so, on the basis of the evidence presented. However, we would not advise you to proceed to a hearing of the case if the grounds fell short of that required to justify an order under this section.

14. How long will the court reduce the disqualification period for?

Each case is based on its own individual merits. As such, it is impossible to know firstly whether it will be successful and secondly, how long the judge might reduce the period for.

For some people nearing the end of the disqualification period, it might simply be best to “wait it out” rather than make an application.

Another word of warning is that even if a court does reduce the period of disqualification, it might only do so for a short period – eg 6 months or a year. Whilst this is better than serving the entire period of the original disqualification, you need to assess the cost / benefit of such a reduction.

Francis Wilks & Jones is the county’s leading firm of disqualification solicitors. We are genuine experts in what we do with a combined experience of over 75 years in disqualification claims. Contact one of our friendly expert solicitors now for your consultation.

Or speak to Doug McEvoy or Stephen Downie direct for help

Francis Wilks & Jones acted with great professionalism, responding quickly to my requirements, leading to an eventual withdrawal of the claim against me and my son. I am extremely grateful.

A client who approached us just two weeks before the trial of a large director disqualification claim against him and his son

I would strongly recommend using FWJ for director disqualification matters. Tactically and commercially they played it just right and I am now able to get on with my business life without the worry of disqualification hanging over me.

A director we defended against a disqualification claim