Legal Costs of a Disqualification Undertaking
If a director of an insolvent company is faced with enquiries by the Secretary of State or, further down the line, the threat of Disqualification Proceedings, then the options available to him/her are limited.
The director may consider s/he has done nothing wrong and seek to provide justification for the circumstances that have passed (with regard to the company now in insolvency proceedings).
Alternatively, the director may seek legal advice and make such representations via instructed solicitors who will be more experienced in such matters and better able to put the necessary representations in writing.
However, if none of this is successful, then the Insolvency Service (acting for the Secretary of State) will progress matters and issue a Disqualification Claim against the director(s).
When can a Disqualification Undertaking be offered?
A Disqualification Undertaking can be offered at any time after the letter is sent with notice to commence the Disqualification Proceedings (“the Section 16 Letter”) and before conclusion of the trial.
For some directors it is important to defend the Disqualification Proceedings perhaps for the sake of their current business or because they have a strong defence and justification for their actions (or inactions).
However, litigation can be extremely tiring with lots of procedural stages and a drawn out dispute extending over months and potentially years until conclusion, during which the Director’s legal costs continue to escalate.
A Disqualification Undertaking can be offered at any time during this process – be that immediately (or shortly after) service of the issued Disqualification Claim, or following the exchange of evidence, on the eve of the trial or, occasionally, during the trial itself.
What are the costs consequences?
Before the issue of a Disqualification Claim, even where the Secretary of State has employed solicitors to act on their behalf, there should normally be no costs consequences of signing a Disqualification Undertaking.
However, following the issue of a Disqualification Claim, costs liabilities arise automatically for the losing party.
Even more so, the Practice Direction that regulates Director Disqualification proceedings specifically provides that if a director offers and enters into a Disqualification Undertaking after proceedings are issued, s/he will be liable for the Secretary of State’s legal costs.
There is no escape.
Accordingly, if a director defends proceedings through to trial, but offers a Disqualification Undertaking before the trial costs are incurred, s/he makes a much greater saving than offering the Disqualification Undertaking partly into the trial, at which point the barrister’s fees and solicitor’s costs (on both sides) will have been incurred for the entire period of the trial.
Of course leaving matters late has its tactical benefits, both in terms of the litigation and in terms of the director’s personal circumstances.
At Francis Wilks & Jones we have considerable experience of Director Disqualification proceedings and advising directors on the above considerations and the risks of litigated 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.