Legal Costs and Funding Your Defence

If a director of an insolvent company becomes subject to enquiries and investigations by the Insolvency Service, they then may face the risk of being threatened with disqualification as a director.

For most people facing this threat, the options are limited – they either agree to be disqualified by offering a Disqualification Undertaking or they face legal proceedings (which may be costly).

The Secretary of State threatens disqualification in a wide variety of cases – from the extreme cases of directors who conducted potentially fraudulent schemes and whose disqualification is sought for a substantial period of time (between 10-15 years).

At the other end are directors who may have not been so culpable, who were perhaps inexperienced or ill equipped to carry out such a business and became drowned in the complexities that running a business requires – in which case a much lower period of disqualification may be sought (on the basis that the public still needs protection against such individuals) for between 2-5 years.

The period of disqualification reflects the severity of the misconduct.  However, it is not dependent on any criminal or fraudulent intention, but its sole purpose is to protect the public (not punish the guilty).

Likely Costs of being Disqualified

Many directors handle the approaches of the Insolvency Service themselves and, if the Secretary of State insists on seeking a disqualification, then such individuals may offer a Disqualification Undertaking.

In such scenarios there is no cost – the Secretary of State will not seek any legal costs and, but for the indirect cost of being disqualified, there will be no direct cost.

However, for many directors being disqualified is a very real threat and they need immediate and early legal representation to maximise their prospect of not being disqualified. In such circumstances it is always the case that a director should seek specialist legal advice with expertise in this area.

Funding Your Defence

The Insolvency Service, who act on behalf of the Secretary of State in dealing with Disqualification Claims, will provide opportunities for a director to provide representations on their own behalf in an attempt to avoid disqualification.

Whether a director makes such representations without legal advice, or with legal advice, it is almost certainly the case that such representations will form evidence in any subsequently issued Director Disqualification Claim.  Indeed it is often the case that a director acts honestly and with integrity by making such representations, only to later regret it when they are used against him/her in an unexpected way.

Accordingly, we would always recommend seeking legal advice before engaging with the Insolvency Service on anything after submission of the initial questionnaire (in compliance with a director’s statutory duties).

We set out below some comments on the legal costs of Disqualification proceedings and address any considerations to funding your defence as a director:

  1. Pre-action legal costs
  2. Legal Costs of Undertaking after Issue
  3. Legal costs up to Trial
  4. Arrangements to fund legal costs

At Francis Wilks & Jones we have considerable experience of director Disqualification matters and defending directors in legal proceedings, and we also have extensive experience of litigation funding matters. 

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.