Directors' Duties - What Constitutes Misconduct Part 4

This is Part 4 of a series of booklets considering the general question of Directors’ duties and responsibilities and in particular, what conduct can ultimately constitute a finding of “unfitness” and possible disqualification as acting as a director.

It deals with failure to file statutory information, including tax returns and Companies House documentation, and the failure to maintain or preserve company documentation and accounting records.

Unfitness is governed by section 6 of the Company Director Disqualification Act 1986 (“CDDA 1986”).

This series of booklets is intended to guide you through the general standard of behaviour expected by the Courts on either: (i) an objective basis – i.e. the standard expected of directors generally; and (ii) a subjective basis – i.e. the higher standard expected of directors having regard to their qualifications, skills and experience.

Although cases are always judged on their own individual facts, certain common threads can be determined from the various decisions made by the Courts when determining unfitness pursuant to Section 6 of the CDDA 1986.

1. The Court’s approach to the filing of company documentation when considering the question of Director disqualification.

The courts take the view that the filing of such documents is necessary to enable stakeholders in the company (creditors in particular) to understand the finances of a company to assist them in forming their views as regards their involvement in the company’s affairs.

Failure, for example, to file accounts when a company is in financial difficulty is viewed seriously. As a result, creditors and other third parties (including shareholders) are unable to properly review the financial position of a company and as a result are unaware of financial difficulties faced by the company at a time that they may decide to commit their own resources.

2. What are a director’s statutory obligations when considering the question of directors’ responsibilities?

There are various statutory obligations of directors pursuant to the Companies Act 2006, including the following:

  • a. Section 113 (keeping a register of members);
  • b. Section 114 (making the register to be kept available for inspection);
  • c. Section 162 (keeping a register of directors);
  • d. Section 165 (keeping a register of directors’ residential addresses);
  • e. Section 167 (the duty to notify registrar of changes of directors);
  • f. Section 275 (keeping a register of secretaries);
  • g. Section 276 (the duty to notify registrar of changes of secretaries);
  • h. Section 386 (the duty to keep accounting records);
  • i. Section 388 (knowing where and for how long accounting records to be kept);
  • j. Setion 441 (duty to file annual accounts with the Registrar of Companies);
  • k. Section 854 (the duty to make annual returns);
  • l. Section 860 (the duty to register charges);
  • m. Section 878 (the duty to register charges; companies registered in Scotland).

There are numerous other requirements in respect of the need to ensure that the company is registered at Companies House, the various director responsibilities to file financial accounts and audited accounts (where necessary) annually at Companies House, the requirement to keep accounting records for at least 6 years, the requirement to file an annual Company Tax Return (CT600) with Her Majesty’s Customs & Revenue (“HMRC”), the statutory requirement to register for VAT when turnover reaches a certain threshold (although the company may voluntarily register earlier to gain the ability to reclaim VAT paid) and the statutory duty to file returns on employee payments monthly and in respect of tax arising on profits annually.

It is recommended that at all times you seek professional advice to guide you through this minefield of regulations and statutory requirements, the breach of any of which could lead to severe consequences.

However, in disqualification proceedings, these types of allegation are rarely made out in isolation and will usually feature in addition to other allegations.

3. What if a director consistently fails to file company documentation at Companies House? Can this lead to being banned as a director?

Failure to consistently file company documentation can lead to a finding of unfitness, particularly where loose “groups” of companies are formed by a single director and which in themselves appear to constitute some form of “phoenix” trading arrangement.

A total failure by a director to file any company documentation is likely to lead to disqualification. Additionally, under Section 453 of the Companies Act 2006 a late filing penalty can be imposed on the company and this will be doubled if not paid within the required period. This duty exists regardless of whether the company is trading or is dormant.

Ultimately, if a company continuously fails to adhere to its statutory duties to prepare and file annual accounts and returns at Companies House, the Registrar of Companies can strike the company off the register. This can have a severe effect on the company and turns its business essentially into a sole trader or partnership operation, with the appropriate personal liability for the owner/partner arising from consequential business dealings.

Under Section 212 of the Insolvency Act 1986, a director can be liable for any loss to a company arising by virtue of his breach of any of his duties (including the responsibility to prepare and file annual accounts).



4. What if a director has delegated responsibility for this function to external providers who simply failed to do the task? Will this result in being banned as a director?

5. What are the general principles relating to the failure to maintain and preserve accounting records when looking at director disqualification?

6. I am more focused on sales than finances – why can’t I just leave this function to someone else?

7. What should I do to ensure possible problems relating to statutory filing etc are avoided?

8. What happens if I fall behind on my tax liabilities? What are my director responsibilities?

9. What can HMRC do against me personally for a failure by the company to adhere to its statutory duties in respect of tax returns?

10. What if records are lost or destroyed? Do I suffer personally?


Should you require assistance with any concerns which relate to Director Disqualification proceedings or your personal risk generally as a director, then please contact Francis Wilks and Jones and we will be more than happy to discuss your concerns on an initial no obligation basis.

Each case we deal with is unique to the individual concerned. Our team of experts can provide you with the tailored expert advice you need.