Director Disqualification Claims - 26 FAQs
Here you can download our Director Disqualification Claims - 26 Frequently Asked Questions Answered booklet. An example of the useful information you can find in the booklet is featured below.
1. What is a director?
A “Director” is not generally defined in legislation, but relates to any person occupying the position of director by whatever name called. This can include senior managers, partners, trustees or governors.
Conventionally, a director appointed to a company’s board and registered at Companies House is referred to as a De Jure director. A director will always include non-executive directors who, although not having a role in the company’s day-to-day affairs, have identical responsibilities to the executive directors (i.e. the active directors) in respect of company affairs and duties under the Companies Acts.
Other individuals may also be defined as a director and therefore be subject to the same responsibilities and requirements of ordinary De Jure directors. These generally fall into one of two definitions, either a “Shadow Director” or a “De Facto Director”.
“Shadow Directors” are specifically included within the definition of a director by statute, which describes such persons as, “a person in accordance with whose directions or instructions the directors of a company are accustomed to act,” although this excludes roles where the directors acted in reliance of an individual acting in a professional capacity (e.g. an accountant).
“De Facto Directors” are not generally defined by the legislation but are well recognised in common law as comprising those individuals who act as a director even though not validly appointed as so.
2. Does providing professional advice to a limited company put me at risk of director disqualification?
The answer is generally no. Giving advice in a professional capacity to a limited company does not normally make someone a shadow director. However, you may be more at risk in certain situations - for example as an in-house lawyer or a financial adviser.
To minimise risk liability a person concerned should:
- (i) Ensure that all business decisions are properly taken by the board;
- (ii) Ensure that any advice given does not take the form of a “dictat”;
- (iii) Avoid taking control of the financial affairs of the company you are giving advice to;
- (iv) Always make sure that minutes of board meetings reflect that decisions have been made by the board.
- (v) Always ensure the minutes reflect the capacity you are attending in (i.e. not as a director – for example as an advisor to the board).
There have been instances where management consultants have been disqualified and held to be de facto directors but the above should help avoid this situation arising.
3. What is the effect of a director disqualification order?
If a director disqualification order is made, you cannot, without leave of the court:
- (i) be a director of a company;
- (ii) be concerned in any way whether directly or indirectly in the promotion formation or management of a company;
- (iii) be a liquidator or administrator of a company;
- (iv) be a receiver or manager of a company’s property.
4. What is meant by being involved in the “management” of a company?
The meaning has been interpreted extremely widely. There are no hard and fast rules as to what it means as every business is run differently. The courts look at matters on a case by case basis to determine whether a person’s role is effectively involved in the management of a business rather than that of an employee.
However, there are indicators that a person is acting beyond the remit of a mere “employee” and is effectively involved in the management of a business:
- (i) Being a signatory on the company bank account;
- (ii) Attending board meetings;
- (iii) Being involved in strategic planning;
- (iv) Being the “go to” person for customers and clients;
- (v) Otherwise making decisions that no other person can make and/or having no one to account to;
5. How long does a director disqualification order last for?
Director Disqualification has three distinct bands:
- (i) A lower category of 2-5 years. This largely relates to reckless or negligent conduct as a director.
- (ii) A mid category of 6-10 years. This is classed as serious, and relates to conduct which is more directly prejudicial to the public interest.
- (iii) The highest category of 11-15 years. This conduct is the most serious and generally relates to fraudulent or otherwise serious (sometimes criminal) behaviour.
IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.
ALTERNATIVELY, CONTACT THE DISQUALIFICATION TEAM ON 020 7841 0390
6. Which category can I expect to end up in if faced with a director disqualification order?
7. Can I act as a sole trader or partner if subject to a director disqualification order?
8. Is there any way I can act as a director or be involved in the management of a Limited Company once subject to a director disqualification order?
9. What behaviour can give rise to a director disqualification order?
10. What conduct can give rise to a finding of “unfitness” pursuant to section 6 of the Company Director Disqualification Act 1986?
11. What happens if I breach a Director Disqualification Order?
12. What happens if someone else acts on my behalf / on my instructions whilst I am subject to a director disqualification order?
13. What happens if I didn’t realise I was taking part in the management of a company whilst subject to a director disqualification order?
14. Can my disqualification be limited to certain areas / tasks?
15. How long has the Secretary of State got to bring a claim against me for director disqualification?
16. What happens if they miss the 2 year period to issue director disqualification proceedings?
17. I don’t have much money to spend on legal fees. Is there a quick was of dealing with a threatened claim?
18. What is a voluntary undertaking?
19. I am not involved in a Business any more. Does it really matter how long I am disqualified for?
20. Does agreeing a director disqualification undertaking open me up to other claims?
21. How many people are disqualified each year?
22. What is the average length of a director disqualification order?
23. Is it easy to find out if someone is subject to a director disqualification order?
24. Can I lower the period I have already been disqualified for?
25. What will it cost me to contest director disqualification proceedings?
26. Will it make a difference if I pay back the money the liquidated company owed to either HMRC or the Creditors?
The above are just some of the questions we get asked in relation to disqualification proceedings. Our specialist team at FWJ are the leading experts in the country when dealing with director disqualification claims.
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