Director Disqualification - Common Questions Answered

1What happens if the secretary of state misses the limitation period to issue director disqualification proceedings?

If a director disqualification claim is not started within this time it is highly unlikely that any claim can be brought as leave of the court is then required and this is not often given. Very good reasons will have to be given by the Secretary of State for missing the correct time period.

2. I don't have much money to spend on legal fees. Is there a quick way of dealing with a threatened director disqualification claim?

The answer is Yes.

There is a process by which a director disqualification “voluntary undertaking” can be given to the Secretary of State not to act as a director for an agreed period of time.

3. What is a voluntary director disqualification undertaking?

This is a simple procedure designed to streamline the disqualification process [section 1A of the Company Directors Disqualification Act 1986]. Essentially a person agrees not to act as a director for a set period of time based on a schedule of “agreed” unfit conduct in the liquidated company giving rise to the director disqualification. For more information regarding undertakings, download our Tips booklet on the subject.

4. I am not involved in a business any more. Does it really matter how long I am disqualified for?

If you are not currently involved in a business, then you might not be too concerned how long you are disqualified for. However, it is always worth trying to lower the period of director disqualification order as much as possible.

Your circumstances might change and you might want to become a director or involved in the management of a business again sometime in the future. If that is the case you will either have to wait for the period of director disqualification to expire, or make an application to court for permission to become a director despite the director disqualification order.

(i)      The longer the director disqualification period, the longer you will have to wait for it to expire and the more serious the director disqualification order will impact you personally.

(ii)      The longer the director disqualification period, the more difficult it is to obtain permission from the court to become a director despite director disqualification (although not impossible).

Trying to minimise the period of director disqualification always makes sense.

5. Does agreeing a director disqualification undertaking open me up to other claims?

The director disqualification order or (if you voluntarily enter into it) director disqualification undertaking is only there to deal with the director disqualification claim.

If there are other claims which may be bought against you in respect of the liquidated company, then the liquidator will need to prove these claims in their own right. A liquidator cannot rely on the fact of a director disqualification order to try and bring other claims against an individual.

However, it is important to be aware that the director disqualification undertaking / director disqualification order is publicly advertised at Companies House and thus in any other proceedings it can be referred to by way of evidence of misconduct. It is not unusual for liquidators with claims against directors to wait for the director to be subject to a director disqualification order to further bolster his/her claim against you.

This may not in proceedings be that effective, but will certain give them the edge in any negotiations with you.

There are a wide range of claims which a liquidator may wish to bring against former directors or managers of businesses and if further advice is required on this, please visit our website and in particular, the insolvency litigation section.

6. How many people are disqualified each year?

The number of disqualifications goes up and down each year. The recent statistics
 

Year

Number of Disqualifications made [1]

Number of Insolvencies (Compulsory / Voluntary Liquidations and Administrations leading to creditors voluntary liquidation [2]

 

 

 

2008-2009

1252

18,711

2009-2010

1543

20,188

2010-2011

1615

17,094

2011-2012

1597

17,747

2012-2013

1039

16,314

2013-2014

1294

15,868

2014-2015

1209

not available

2015-2016

1208

Not available

 

7. What will it cost me to contest director disqualification proceedings?

As long as you deal with matters early, costs can be limited. The golden rule is that the earlier you deal with a threatened director disqualification claim, the cheaper it is. Ignoring threatened director disqualification proceedings is ill advised as they are unlikely to be dropped and you could, if formal director disqualification proceedings are issued, be faced with paying the Secretary of State’s legal costs.

However, as a director of a company, you do have statutory duties to cooperate with the Secretary of State and the Official Receiver in respect of these enquiries and accordingly they cannot be ignored. The most important approach to take is to obtain proper advice on your responses and respond accordingly. The longer you leave these director disqualification claims, the more expensive they can become and the worse your prospects of getting rid of the director disqualification claim.

Once director disqualification proceedings have been commenced against you, a decision which normally arises following a detailed review of the strength of the case by government departments, the only choices you will have will be to either provide a disqualification undertaking or contest the director disqualification claim.

The former route of a director disqualification undertaking is undoubtedly cheaper than defending a case. However, by defending a case, you maximise your chances of not being disqualified at all.

8. Will it make a difference if I pay back the money the liquidated company owed to either HMRC or the creditors?

The answer is No.

Director Disqualification proceedings relate to the conduct of the individual at the time and later repayment of outstanding monies makes little if any difference to whether a claim is commenced or not. Bluntly, you are better off spending your money defending the claim – assuming you have grounds to do so.

9. Does it matter if the director hasn't drawn any pay from the company?

The answer is No.

A director can’t avoid his responsibilities on the basis that s/he didn’t earn anything from the business. However the converse is true. The higher the level of remuneration by a director, the more the Court will expect that person to have been involved in running of the business – quite often we see the main interest represented by a shareholder who distances himself from any interest in a company but is paid the most.

10. What can a director do if unable to remedy improper or inappropriate running of a company?

If a director discovers something “untoward” going in the company but cannot compel his co-directors to fix it, what should that person do?

Conventionally a director should raise these issues at a board meeting and ensure there is a minute of this meeting to record his concerns and suggestions to remedy the situation (it may also be advisable to keep a personal record of the minute).

If a majority of directors are unwilling to follow such suggestions or do not propose similar remedial action, or if the remaining directors refuse to attend the meeting, then there are very few alternatives available.

If the director is also a shareholder s/he may be able to take derivative action against the fellow directors or force the company to take the necessary steps proposed. However, if this is not possible, then the only alternative is for that director to resign.

Equally, simply resigning may not be enough to avoid criticism as that director is effectively leaving the company vulnerable to the will of the previous directors and therefore a decision has to be made as to whether there is a need to convene a shareholders meeting (if that director is a shareholder), report such concerns to government or regulatory authorities or to otherwise consider whistleblowing.

However, the answer when faced with the above situation is to try and remedy things and if this is not possible, to resign. To simply state “I did what I could” is no defence to a claim of unfitness.

Contact an expert director disqualification solicitor now

Our expert team of director disqualification solicitors at Francis Wilks & Jones are here to help you with any type of director disqualification enquiry. Contact one of our expert director disqualification lawyers now for your confidential consultation. Whatever your director disqualification requirements, we can show you director disqualification examples of similar cases we have successfully assisted with.

 

[1] Companies House Statistical Tables on Companies Registration Activities 2013/1144 Table D1

[2] Companies House Statistical Tables on Companies Registration Activities 2013/1144 Table C2

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