Director disqualification claims are often brought against individuals who acted as directors – whether formally appointed or not – to protect the public interest.
A director disqualification claim nowadays is most commonly sought against directors of insolvent companies, although it can also be sought in criminal proceedings.
Where you have been a director of a company which has been placed into administration or liquidation, or where you are facing a winding-up petition, there is always a risk that you could face subsequent claims by the Secretary of State for you to be disqualified from acting as a director or in the promotion, formation or management of any limited company (including those other companies that you currently run).
Circumstances where I could be disqualified as a director
In summary, any conduct as a director which threatens the public interest can lead to a Disqualification Order being made against you.
By far the most common circumstances are where a company has been placed into an insolvent liquidation or in connection with criminal proceedings where, perhaps, a fraud has been committed. The civil claim would be best described as a lack of commercial probity whereas, for a criminal claim, such circumstances are often described as fraud or theft.
What is the purpose of director disqualification?
For civil proceedings, the main purpose of disqualifying an individual from acting as a director is to protect the public interest – i.e. to prevent that individual from continuing to act as a director (or being appointed as a director of another company) and repeating his/her behaviour (which often results in losses, dependant on the company’s business).
Prosecutions sought for financial crimes, fraud or any other crime which is in connection with the promotion, formation or management of a limited company (including both indictable and summary offences) can, upon sentencing, include an order disqualifying the defendant as a director. The underlying purpose remains the same (to protect the public interest) together with Parliament’s desire for such powers to act as a disincentive to potential criminals.
Most commonly, the Registrar of Companies will often bring prosecutions against directors for failing to comply with the Companies Act 2006 (as amended), most commonly in respect of the filing of accounts and Confirmation Statements/Annual Returns. For repeat offences of this nature, a Disqualification Order will always be sought against that individual.
Personal risk to directors
Being disqualified as a director can have grave personal risks – the director cannot continue to act as a director of either his current companies or any new companies.
Additionally, the Disqualification Order or Disqualification Undertaking is listed on a public register at Companies House and may impact on you personally with regard to your business or your credit worthiness.
From October 2015, any misconduct as a director leading to disqualification means that you could also be liable for a Compensation Order meaning that you will be liable to reimburse for the losses suffered.
Director disqualification is a wide area of law with lots of fact-specific requirements, meaning that no two (or more) cases are the same.
For a director or owner of an SME business, the following are links to pages which deal with some of the risks you should consider when making any decision or, more importantly, when faced with threatened director disqualification proceedings:
- Who brings a director disqualification claim?
- Purpose of director disqualification
- Breaches of fiduciary duties v public interest duties
- Restrictions imposed by director disqualification
- Period of disqualification as a director
At Francis Wilks & Jones we are able to advise on your fiduciary duties, assist with negotiations or act for you in director disqualification proceedings.
Please call any member of our Director Disqualification team for a consultation now on 020 7841 0390. Alternatively please email us with your enquiry and we will call you back at a time convenient for you.