Future Business Interests
A director who agrees to be disqualified by way of a Disqualification Undertaking or is subject to a Disqualification Order will, as with all litigation proceedings, have prioritised concerns for his/her exposure to the Secretary of State’s legal costs.
As with any proceedings, if you lose at trial (by way of a Disqualification Order) or you offer to settle (via a Disqualification Undertaking then you have to pay your opponent’s legal costs going back to the commencement of proceedings (including all pre-action correspondence).
We provide more guidance on legal costs here.
However, in addition to the liability for such legal costs there are other consequences of being disqualified which may affect your future business interests and opportunities.
We address some of these considerations below.
A common problem which occurs with disqualification proceedings is that, by the date in which they are instituted and brought to trial (up to 4 years after the commencement of insolvency) the director(s) have started a new company which may well be very successful.
In the alternative to defending a disqualification claim through to trial, a director may instead chose a less expensive (and more commercial) approach by offering to enter into a Disqualification Undertaking and then seeking leave to act.
However, for many companies (particularly those involved in the financial sector) or for those reliant on funding, the very existence of one of the directors on a public register of disqualified directors may cause difficulties for this new company.
It is not unusual nowadays for credit reference agencies and financiers to rely on additional sources of information when reviewing a company report and it is becoming increasingly common for such company reports to include a comment or cross reference to whether the director is disqualified.
In such circumstances, the legal remedies available (including the option to seek leave) will not be sufficient to deal with these risks to the new company.
When considering such risks a director subject to disqualification proceedings may consider that the only option is to defend the disqualification claim.
A director may seek to deal with a threatened disqualification by offering a Disqualification Undertaking early on as an easy way out, which may also be cost free (if offered early enough).
This is obviously subject to the risk that a Compensation Order is not sought.
However, we increasingly find that such individuals may some years later (whilst the disqualification period is still ongoing) come across an opportunity which requires them to act as a director or in the management of a limited company.
It is only when this occurs that the schedule of misconduct annexed to a Disqualification Undertaking comes under closer scrutiny – if the Director wishes to seek leave to act at this much later stage then this schedule (annexed to the Disqualification Undertaking previously provided) will be the main source of information for the Court to refer to when considering whether to grant such leave.
At Francis Wilks & Jones we can advise on how disqualification will affect you and the risks you face when accepting a Disqualification Undertaking.
Please call any member of our Director Services Team for your consultation now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.