Reducing the Period of a Director Disqualification Ban - 14 Common Questions Answered
Reducing the period of a director disqualification ban
1. Is it possible to reduce my director disqualification period?
The answer is Yes – but only in certain circumstances where the director disqualification has commenced by way of an undertaking offered under section 1A of the Company Directors Disqualification Act 1986 (a “Director Disqualification Undertaking”).
2. What are the statutory provisions dealing with the reduction of a director disqualification period?
This aspect of the director disqualification regime is governed by section 8A of the Company Director Disqualification Act 1986.
Section 8A states:-
- The Court may, on application of a person who is subject to a Director Disqualification Undertaking-
- reduce the period for which the Undertaking is to be in force, or
- provide for it to cease to be in force.
- On the hearing of an application under sub-section (1), the Secretary of State shall appear and call the attention of the Court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.
It is important to understand therefore that Section 8A can only be used by people who have been disqualified by having given a voluntary director disqualification undertaking.
3. How far can my period of director disqualification be reduced?
For disqualification undertakings entered into following the insolvency of a company (under Section 7(2A) of the Company Directors Disqualification Act 1986), it is important to understand that the Court cannot vary a period of director disqualification period below the statutory minimum – currently 2 years.
However, as an alternative, if less than two years have passed since the director disqualification undertaking was entered into, an individual can apply under Section 8A(1)(b) for it “to cease to be in force”.
For all other disqualifications (sections 2, 8, 9B) a director disqualification undertaking can be reduced to any period (but not nil, as the voluntary director disqualification undertaking cannot be annulled or rescinded – see below).
4. Can this procedure be used to overturn my Director Disqualification Undertaking completely?
The answer is No.
This procedure will never enable an individual to rescind or annul a Director Disqualification Undertaking. It can only reduce the original director disqualification period.
5. If it doesn’t overturn my Director Disqualification Undertaking, why would I make the application?
A successful application can lead to a person no longer being subject to director disqualification.
For example, if a person has “served” 7 years of a 9 years director disqualification period, that person still has 2 years left to run before he/she can act as a director again. If that person makes a successful application under Section 8A and 2 or more years or more is “knocked off” the original 9 year period– the effect is that the original director disqualification order has now expired as that person has already served 7 years of the director disqualification.
However as stated above, it is important to understand that this procedure will not have the effect of the original director disqualification penalty never having existed in the first place.
6. Isn’t it more straightforward just to apply to court for permission to be a director if I now want to get back in to business?
There is the ability for a person to apply for permission from the Court to act as a director despite having been subject to director disqualification. This is allowed under certain circumstances by the director disqualification court pursuant to section 17 of the Company Director Disqualification Act 1986. The procedure for this is covered elsewhere on our website.
However, the director disqualification Courts are very reluctant to grant permission for a person to act as a director of a business if his/her original disqualification is over 8 years. Indeed, anything between 6-8 years is difficult.
There is also the difficulty that the Secretary of State is required by the Court to raise public interest concerns and effectively acts to “vet” such applications. This can make the burden of satisfying the Secretary of State and the director disqualification Court very heavy and potentially expensive. Alternatively, an application under Section 8A is a more straightforward matter which is dependent on evidence, although great importance will still be placed on the secretary of State’s concerns by the Court.
Therefore, if you find yourself disqualified as a director for 8 years of more, your only option if you want to get back into business at director level is to try and get the original director disqualification period reduced to a period where the court will not automatically refuse an application for permission to be a director – i.e, you need to aim to get the original director disqualification period down to no more than 6 years if possible, to make a subsequent s.17 application have reasonable prospects of success, or less to ensure the director disqualification period has now expired (dependent on the period of time served to date).
7. Can I challenge the original allegations referred to in the Director Disqualification Undertaking?
The answer is No.
Section 8A cannot be used to amend the reasons cited (and agreed to) in the original director disqualification undertaking and which gave rise to the director disqualification. It is simply a mechanism to reduce the overall director disqualification period where the director disqualification undertaking may have been entered into under oppressive circumstances.
8. Is it possible to vary the original Director Disqualification Undertaking by agreement?
The answer is No.
It is not possible for a Director Disqualification Undertaking to be discharged or varied by agreement between the parties. It has to be something ratified by the director disqualification Court and the secretary of State has no discretion to authorise this, even if he agrees with the reduction sought.
9. What is the director disqualification court’s general view on these applications?
Section 8A is not a well-trodden path in terms of legal applications. The main case on the subject is called Re: INS Realisations Limited v Jonkler and Spencer-Jonkler.
In that case, the director disqualification Court made it clear that variation of a Director Disqualification Undertaking would only be permitted in “special circumstances”. The director disqualification Court was very clear that on the whole, it is reluctant to go behind the Director Disqualification Undertaking and was mindful not to be seen to be leaving the door open to disqualified directors to essentially circumvent the effect of a voluntary director disqualification undertaking by then later applying to reduce the period it was given for. It needs to be remembered that the director disqualification Courts are there to ensure that the public interest is protected pursuant to the disqualification regime and they do take this role seriously.
However, the legislation exists for a reason and subject to a satisfactory explanation of the grounds for seeking such a director disqualification reduction, there is no reason why this should not be available to you.
10. On what grounds will a director disqualification court reduce the original period of director disqualification undertaking?
The director disqualification Court may be willing to reduce the original period of disqualification on the following grounds:-
- Where the consent of the person giving the original director disqualification undertaking was in some way vitiated so that he/she never really consented into the entering of the director disqualification undertaking. This section would cover, for example, undue influence, duress or mistake in signing the director disqualification undertaking.
- Some fundamental mistake was made and discovered after the director disqualification undertaking was accepted.
- That new information has become available to the person who gave the director disqualification undertaking that was not available to that person at the time when the director disqualification undertaking taken was entered into.
- When a review of other case law relating to similar grounds for the original director disqualification demonstrate that the original director disqualification period offered by the Secretary of state was excessive.
- Where the Secretary of State has acted in a deliberately oppressive manner in obtaining the director disqualification undertaking.
11. What if I didn’t have or couldn’t afford proper legal advice at the time I gave the original director disqualification undertaking?
In the Jonkler case mentioned above, the director disqualification Judge made it clear that this is something they will rarely take in to account – mainly due to the number of cases which would fall in to this category.
12. Is the director disqualification reduction procedure complicated?
The application is relatively straightforward.
The main part is drafting affidavit evidence (ie written statements). These need to cover both the reasons for the original director disqualification in detail and then set out the grounds why the original director disqualification period should be reduced.
That evidence is served on the Secretary of State and it is likely it will then be referred to one of his panel solicitors to deal with. They may respond with their own written evidence or simply attend the hearing before the Judge to make comment.
The length of the hearing will depend on the volume of evidence the director disqualification Judge has to consider. Normally however, you could expect the hearing to last no more than half to one day. You would need a director disqualification barrister to attend the hearing to present the case to the director disqualification Judge and deal with the legal argument.
13. Does the director disqualification court have to reduce the period?
The answer is No.
It might refuse to do so, on the basis of the evidence presented. However, we would not advise you to proceed to a hearing of the case if the grounds fell short of that required to justify an order under this section.
14. How long will the court reduce the director disqualification period for?
Each case is based on its own individual merits. As such, it is impossible to know firstly whether it will be successful and secondly, how long the Judge might reduce the period of director disqualification for.
For some people nearing the end of the director disqualification period, it might simply be best to “wait it out” rather than make a director disqualification reduction application.
Another word of warning is that even if a court does reduce the period of director disqualification, it might only do so for a short period – eg 6 months or a year. Whilst this is better than serving the entire period of the original disqualification, you need to assess the cost / benefit of such a reduction.
Contact an expert director disqualification solicitor now
Francis Wilks & Jones is the county’s leading firm of director disqualification solicitors. We are genuine experts in what we do with a combined experience of over 50 years in director disqualification claims. Contact one of our friendly expert director disqualification solicitors now for your consultation.
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