Disqualification Undertakings - Explained
Here you can download our Disqualification Undertakings – Explained booklet. An example of the useful information you can find in the booklet is featured below.
1.The Background to the Disqualification Undertaking Regime
Director Disqualification Undertakings came into force on 2 April 2001 as part of the Insolvency Act 2000.
Prior to this time a person facing disqualification as a director could not be disqualified without there being a formal Court hearing. This was even true where a person was prepared to consent to being disqualified voluntarily. The Company Director Disqualification Act 1986 simply did not cater for any form of voluntary disqualification.
This made it both expensive and time consuming for people who were prepared to accept a disqualification on a voluntary basis – either because they were unwilling or unable to contest the legal proceedings which they faced.
In recognition of this problem, a new streamlined method for enabling a person to agree to a voluntary disqualification was introduced in 2001.
2. Director Disqualification Undertakings – the present law
The present law is enshrined in Section 1A(1) of the Company Director Disqualification Act 1986.
Section 1A(1) enables a person to give an undertaking meaning that that he/she:
- (a) will not be a director of a company, act as a receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has permission of the Court, and
- (b) will not act as an insolvency practitioner.
3. The different periods of director disqualification
The maximum period which a person can be disqualified by way of undertaking is 15 years. The minimum period is 2 years.
There are 3 distinct “brackets” of disqualification within this range.
- 2-5 years - this is known as the “lower bracket”
- 6-10 years - this is known as the “middle bracket”
- 11-15 years - this is known as the “higher bracket”
Subject to the “gravity” of the offences giving rise to the allegations of unfitness, an individual will face disqualification in one of those 3 categories.
If a person who is already subject to an undertaking or formal court imposed Director Disqualification Order then agrees to a further voluntary undertaking for a second “offence”, the Order shall run concurrently (Section 1A(3) of the Company Director Disqualification Act 1986).
4. What conditions need to be satisfied before the Secretary of State can accept a Director Disqualification Undertaking?
There are 2 main conditions:-
In reality, the Secretary of State will nearly always accept a disqualification undertaking if one is offered.
- 1. The Secretary of State must be satisfied that the person offering the undertaking is or has been a director of a company which has at any time become insolvent and that the conduct of that person as director of that company makes him unfit to be concerned in the management of a company.
- 2. Secondly the Secretary of State must believe that it is in the “public interest” that he should accept a Disqualification Undertaking instead of applying or proceeding with an application for a formal Disqualification Order.
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.
5. How are Director Disqualification Undertakings offered?
6. At what stage can a Director Disqualification Undertaking be given?
7. Can the period of undertaking offered be reduced downwards?
8. When does a director disqualification undertaking take effect?
9. Is the undertaking a complicated document to complete?
10. What happens if the Secretary of State is unreasonable when negotiating the period of my Disqualification Undertaking?
At FWJ we can advise you on all aspects of giving Undertakings including what they mean, when they become effective, the length of period and whether it is reasonable, how the giving of an Undertaking may affect your future career together with other more bespoke issues which may be relevant to your individual circumstances. Whilst undoubtedly, the Voluntary Undertaking route does provide a quick and cost effective method by which to deal with the threat of legal proceedings, it can be used by the Secretary of State as a rather blunt weapon against individuals who are not legally advised.
We are more than happy to assist in a brief overview of your proposed Undertaking should you require.