Period of Disqualification as a Director

Following the insolvency of a company, the Secretary of State or Official Receiver may bring director disqualification proceedings against a director seeking a specific period of disqualification as a director of a limited company or Limited Liability Partnership.

There are other powers to disqualify a director of a company, both in civil proceedings and in criminal proceedings, which we summarise below. 

The reasons for disqualification are to protect the public interest and this degree of protection (and period of disqualification sought) will be determined by the severity of the misconduct.

Circumstances where a director can be disqualified

By far the most common circumstances where a director can be disqualified, either by Order of Court or by Voluntary Undertaking is where a company has been placed into insolvency proceedings and the Secretary of State considers it expedient to seek a Disqualification Order on the grounds of evidence of the director’s misconduct.

Similar grounds exist to disqualify a director for a breach of a public interest duty, with the important distinction that evidence of insolvency is not a prerequisite.  

A Magistrates Court can also make an order disqualifying a director subject to breaches of the Companies Legislation, most commonly the Companies Act 2006.  Often this refers to failures to file the company’s accounts and the Annual Return/Confirmation Statement at all or in accordance with the statutory deadlines.

Directors who are alleged to be liable for Fraudulent Trading (Section 213 of the Insolvency Act 1986) or any other fraud in breach of the director’s “duty” may also be disqualified.

Other less common grounds for disqualification include instances where a disqualified director is instructed by a shadow director or third party (regardless of the capacity in which the instructions were given and followed), where a director is guilty of misconduct where a company breaches competition law and where a director is found liable for wrongful trading under the Insolvency Act 1986.

Period of disqualification sought

The period of disqualification sought will always merit the seriousness of the allegations and for this reason (before legal costs escalate) it is important to provide representations early and correct the Secretary of State’s assumptions or findings.

Subject to this, and the severity of the offence, where director disqualification remains to be sought following a company’s insolvency then the Secretary of State/Official Receiver may seek an Order for the director’s disqualification for a period of between 2 – 15 years, broadly split into the following categories:

  • 2 – 5 years

Disqualification for this lower bracket period will usually be sought for less serious offences.

  • 5.5 – 10 years

This period is generally pursued for misconduct that it considers very negligent or serious, but not so serious so as to merit the top bracket (see below).

  • 10-15 years

This period is pursued for the most serious cases of misconduct and usually reflect circumstances of fraud – most notable examples in recent years include carousal (or MTIC) fraud, land-banking and mis-selling allegations. 

In the Magistrates Court the period of disqualification is lower and can be sought for a period of between 1 – 5 years.

Early offers on disqualification periods

Before disqualification proceedings are threatened the Secretary of State will usually send a pre-action letter notifying the director of the intention to issue proceedings, commonly referred to as a Section 16 Letter.  

This provides the director with an incentive to offer a Disqualification Undertaking and avoid costly legal proceedings.

As a further incentive, the s.16 Letter will usually offer a small discount on the disqualification period to be sought, with a further objective of concluding matters early and avoiding the legal costs of proceedings.

At Francis Wilks & Jones we are specialists in director disqualification and have many years of experience in this field in the High Court and Court of Appeal. We also have lawyers with previous experience in the Insolvency Service and Treasury Counsel as well as a dual qualified Chartered Accountant with expertise in arguing accounting matters. Against this background we are the UK’s leading firm of director disqualification defence lawyers and will be able to provide you with timely, appropriate and value-added legal advice and assistance.

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.