Negotiating Voluntary Director Disqualification Undertakings

A Director Disqualification Undertaking is an agreement between an individual and the Secretary of State agreeing the grounds of unfitness and a period for which a person will be disqualified.

It is vitally important that you obtain proper advice prior to agreeing a voluntary undertaking.

Understandably, individuals offered the “quick resolution” of a voluntary Director Disqualification undertaking often just want to put the past behind them. However a hastily agreed Director Disqualification undertaking can have huge effects on a former Director moving forward.

Whilst it may be attractive to enter into a Director Disqualification Undertaking to avoid the potential legal costs for which you may be liable in contested Director Disqualification Proceedings, this can be a mistake. Aside from the consequences of not properly examining the wording of the Director Disqualification Undertaking, it can:

  • Seriously affect your long term future career options.
  • Lead to a claim by the Official Receiver commences proceedings against the Director for a breach of his/her fiduciary duties under the Companies Act 2006, Wrongful Trading under the Insolvency Act 1986 and other statutory claims. Ultimately, the Director’s decision to avoid the legal costs involved in negotiating a Disqualification Undertaking may ultimately lead to a more costly claim from the Official Receiver.
  • Open a director up to a claim under the new Compensation Order scheme when it comes in to effect following the introduction by the Small Business, Enterprise and Employment Act 2015(which received Royal Assent on 26 March 2015). This could leave former directors open to personal claims for losses sustained by all creditors in the liquidation.

At FWJ we can advise you on the Disqualification Undertaking, the steps to take to mitigate your liability whilst still avoiding the Disqualification proceedings and how to balance all of the above risk.

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