Discontinuance of Disqualification Proceedings

Where a Disqualification Claim is threatened against a Director/former Director, then they will of course already have had the option to negotiate with the Insolvency Service and explain their conduct (of lack of).

If the Insolvency Service have decided that the Director must be disqualified, regardless of the representations they have provided, then the three options remaining (and their consequences) are as follows:

1. Do nothing.  

If you do nothing (including not offering a Disqualification Undertaking) then a Disqualification Claim will be issued against you and a Disqualification Order made on a summary basis at the first hearing.

2. Offer a Disqualification Undertaking

A Disqualification Undertaking will be offered to all Directors under cover of a Section 16 Letter sent to them prior to the issue of proceedings.  If this is accepted, no legal proceedings will be issued but the Director faces other risks.

3. Defend the Disqualification Claim

Defending a Disqualification Claim is not without risks but may be the only way to seek a fair analysis of your case.  This will entail a fully litigated set of lengthy proceedings which could last for in excess of a year and as much as two years before the matter is subject to trial.

Will the case Proceed to Trial?

It is not always the case that, once the litigated Court proceedings commence, a Director Disqualification claim does not stop until it is determined at trial.

As with any litigation proceedings, either party may seek to change their case, issue applications for various requests or seek to strike out the other party’s claim or defence well before any full trial is listed to be heard.

Settlement is also an option as, as with many other litigated cases, the process of a Court case leads to new revelations, new witnesses with other information appearing or a general desire from both parties arising from the escalating costs and alterations to their original cases (although this is less common in disqualification proceedings).

Discontinuance by the Secretary of State

It is not unusual, yet also not entirely common, for the Secretary of State to seek to withdraw from a Disqualification Claim.

This may be as a result of evidence arising in the Director’s defence evidence which presents a new version of the case or, with legal advice, considerably alters the strength of the Disqualification Claim (as it was considered pre-issue of proceedings).

Indeed, where a Disqualification Claim is proceeding to trial (and especially where the large trial costs are ominous) it would not be unusual for the Secretary of State to discontinue the Disqualification Claim in the public interest – namely where it is not considered to be in the public interest to incur further legal costs in proceeding with a claim that is now considered unlikely to succeed.

Where the Secretary of State discontinues a Disqualification Claim against a Director, the Director(s) will be entitled to seek recovery of all of their legal costs expended in this matter (including those spent pre-issue).

Undertaking by the Director

A Director cannot discontinue a Disqualification Claim – as set out above and here the only alternative to being disqualified by an Order of Court is by offering a Disqualification Undertaking.

However, once proceedings are issued, the opportunity to offer a Disqualification Undertaking is not lost – at any time (even during the course of the trial itself) a Director can offer a Disqualification Undertaking to the Secretary of State.

In some scenarios a Director may choose to incur the cost of defending a disqualification claim through to the eve of trail (or almost) and then, if the proceedings are continuing to trial, offering an undertaking prior to trial.

This has several benefits but will not mean an escape of the legal costs liability that has arisen to date in the proceedings (and which are payable to the Secretary of State, even where a Disqualification Order has not been obtained.

However, there are other benefits – for example the exploration of evidence may mean that the Secretary of State can be persuaded to accept a lower period of disqualification as a condition of offering a Disqualification Undertaking.

At Francis Wilks & Jones we have considerable experience of Director Disqualification matters and defending Directors in legal proceedings, as well as the above tactical considerations and many more.  In a majority of cases where we have represented Directors at trial, the defence has been successful.  

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.