Pre-action making representations
Directors of UK companies are at risk of being disqualified from acting as a director thereafter where the company is placed into insolvency.
Where a limited company is wound-up by the Court in the UK, upon the making of a Winding-Up Order they will receive (shortly after) contact from the Official Receiver attached to the Court (where the Winding-Up Order was made) providing them with a questionnaire and inviting the director to an interview.
If there is more than one director, every director appointed as at the date of the Winding-Up Order will be approached in the same manner.
Where a company is placed into voluntary liquidation, following a meeting of its shareholders and then its creditors (which will in a majority of cases not be an actual meeting and the resolutions passed by deemed consent) then the Liquidator appointed has a statutory duty to report on the conduct of the director(s) to the Insolvency Service. This duty is ongoing where further evidence is found which should be reported.
The same Conduct Report must be filed following the appointment of Administrators over a company.
Initial Interview and Correspondence with the Insolvency Service
Where a Winding-Up Order is made, within a short period of time the Insolvency Service will send out a comprehensive questionnaire to the director and request that the director attend a meeting, although this can be by telephone.
The questionnaire will address areas such as the company’s assets and liabilities, its creditors’ details and ancillary enquiries which may lead to further investigations into the director’s conduct.
The director’s response, including the details completed within the questionnaire, assist the administration of the liquidation estate, including the collection of all assets and subsequent distribution to creditors.
Where the company has been placed into voluntary liquidation or administration, the appointed Liquidator/Administrator will report on director conduct matters only (as they deal with collection of the estate and distributions to creditors) to the Secretary of State/Insolvency Service.
Following such a report being filed, the Insolvency Service may carry out further investigations into the company’s affairs or, more commonly, immediately contact the director (which will be the first time s/he has heard from this agency in relation to their company) enclosing a questionnaire addressing the issues already raised.
Responding to the Insolvency Service
Under the Insolvency Act 1986 and associated insolvency legislation, a director of an insolvent company has a statutory duty to respond ton and cooperate with all requests made by the Official Receiver/Liquidator/Administrator.
This is particularly important as, without a director’s cooperation, it would be extremely difficult to administer the insolvency proceedings.
Indeed it is often the case that a very cooperative director will respond honestly and with integrity to such enquiries, although they may be unaware of the risk that such honesty brings.
Whilst a director has a duty to be cooperative, often it is the case that because of a misunderstanding on his/her part, or because of a misunderstanding on the part of the Insolvency Service, this honest response may lead to the issue of Director Disqualification proceedings.
As Director Disqualification claims are brought to protect the public interest, it is not the director’s credibility that is being examined, but rather they are looking at what happened and whether that is permissible.
For example, an honest but disorganised director may confess that the insolvent company’s books and records were not well maintained, but they still nevertheless face the risk of disqualification for not ensuring the company properly maintained accounting records.
Threatened Disqualification Claim
Irrespective of whether you have been engaged with the Insolvency Service in a long chain of correspondence, or whether you have ignored or replied little to their requests, if their investigations lead them to believe that the director is unfit and guilty of misconduct then they will seek to issue a Director Disqualification Claim at Court.
Before a Director Disqualification Claim is issued, a notice of the intention to commence proceedings will be sent to the director under Section 16 Company Directors Disqualification Act 1986.
At this point, without legal advice or any further understanding of the legal regime, a director is faced with the stark options of either offering a Disqualification Undertaking or facing the prospect of potentially lengthy and costly litigation proceedings which may still arise in their disqualification (and a bill for the Secretary of State’s legal costs).
It is not always the case that the proposed Disqualification Claim is threatened on the appropriate grounds – in many cases the director has attempted to engage the Insolvency with little experience of this area. In other circumstances his/her arguments have assisted the Secretary of State and hindered his/her case.
The legal argument, and indeed the factual argument, is very different through a lawyer’s eyes. It is almost always the case that a director has claimed something that either was claimed in the wrong context or delivered in the wrong manner, without due care and attention being placed on the aspects which assist him/her.
As a solicitor, where a Disqualification Claim has been threatened, we see many occasions where the grounds for bringing such a claim are not founded on the evidence and it is only the director’s misunderstanding, or indeed the Insolvency Service’s inability to see his/her case, that has led to the Disqualification Claim being issued.
Once the solicitor becomes involved, they are able to consider the matter objectively and, provided they have the necessary experience, recognise what should not have been said and what should have been said to clarify any misunderstanding.
At Francis Wilks & Jones we have considerable experience of Director Disqualification matters and writing letters of representation to correct any such misunderstandings and narrow the issues, which may ultimately lead the Secretary of State acknowledging that it is not in the public interest to issue a Disqualification Claim.
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.