Restrictions imposed by Disqualification
“(a) he shall not be a director of a company act as receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has leave of the court, and
(b) he shall not act as an insolvency practitioner.”
The above applies to any company, limited liability partnership, building society, friendly society and other charitable organisations. In certain circumstances, the disqualification may extend to an overseas company with “sufficient connection” with the UK.
All references below apply equally to these types of organisation.
What a Disqualification does not prohibit
If an individual is disqualified, it does not prevent them from acting as an employee of the company – even if that role is in a relatively senior or specialist/professional capacity. The true test is whether the individual is:
- Seeking to act as shadow/De Facto director of a company; or
- Seeking to act in the management of a company.
If neither of the above apply, then a disqualification will have no effect on your employed role. Equally, a disqualification does not prevent an individual from holding investments and a shareholding in any company (private or listed) although that individual should ensure that they do not overstep their role as shareholder (and not owner-manager, which is often an error we see).
Please click here for more discussion on such risks.
Restrictions on Management
A Disqualification Undertaking or Order will have an identical effect – to prevent the individual subject to this contract from acting in any of the capacities as described above.
For a small company which may have few management personnel – particularly where there is one main director who is now subject to a disqualification – then this may have a catastrophic effect.
For larger companies, or smaller companies where a third party can take over the management and direction of the company, this risk is not so severe and the disqualified director can either alter the nature of their role or cease acting.
However, it is important that – as commonly occurs – the Director does not merely register a replacement at Companies House (for example a spouse) and then continue acting through that individual.
The risk of prosecution in such circumstances is pronounced and very likely.
Restrictions on Professional Organisations
Other rules may apply where an individual is disqualified and either they or their new business is operating in a regulated sector – for example financial services, accountancy or even the law.
In such circumstances the regulatory body may reach decisions, and possibly even reject the individual/organisation, where the individual or a Director has been disqualified.
Many clients commonly face such issues and thus it is important, when agreeing to be disqualified, to ensure all of the documentation is properly drafted.
Loss of Clients
For some businesses, the profile of the company and its directors is of utmost important to the clientele and the disqualification of a Director could have a consequence that the integrity of the company and its client are potentially questioned if that company is permitted to continue supplying goods or services.
These risks are common and we often see clients moving away from companies in certain sectors where such sensitivity exists.
For this reason it is vital that the disqualification itself is managed carefully and such risks considered well in advance.
At Francis Wilks & Jones we can assist in anticipating such problems and managing the outcomes (where being disqualified is a possibility) so as to cause the least inconvenience or disruption to you or your company.
Please call any member of our Director Services Team for your consultation now on 0207 841 0390. Alternatively email us with your query at email@example.com and we will call you back at a time convenient for you.