Seeking leave Section 17 CDDA 1986

A Director of any UK company, or a Partner of any Limited Liability Partnership registered in the UK, may be disqualified from acting as a Director/Partner (or in the management of any such company/LLP) on a number of grounds.

Please see our webpage here which sets out the most common circumstances where Director Disqualification can occur.

By far the most common circumstances where a Director may be disqualified is following a company’s/LLP’s insolvency.

However, regardless of whether an individual is disqualified at trial or by way of providing a voluntary disqualification undertaking then there remains the unusual option of seeking leave to be a Director/Partner of your current company (or a new company) notwithstanding that you are disqualified from acting as a Director.

Why grant leave following a Disqualification?

Disqualification proceedings exist to prevent a repetition of the same behaviour that occurred previously, so as to protect the public interest (and also act as a deterrent in addition to other legal remedies that ensure Directors are transparent in their conduct and dealings).

Whether an individual is disqualified by Order of Court or by way of a Disqualification Undertaking then this may have other risks or consequences.

However, it will often take some time for a decision to be reached by the Secretary of State (acting via the Insolvency Service) to disqualify an individual.  Firstly the Director must have been interviewed, then the necessary investigations and supporting information gathered, including enquiries made of third parties (and the Directors), following which a Section 16 letter issued, after which there may be further extensive exchanges of correspondence.

Thereafter, proceedings may be issued and the proceedings potentially defended by the Director.  Following conclusion of this stage there may be at least another 6 months until the trial. 

Where a Director offers a Disqualification Undertaking then matters are likely to conclude more quickly. 

However, in reality the period between the commencement of the company’s insolvency and the Director’s disqualification can be anywhere between 1 – 4 years, dependant on whether the Disqualification Claim is contested or not.

By this time, the Director may have set up a new company, may indeed have learnt his/her lessons and may be running a successful business.  Alternatively, that individual/business may be providing a key role or service which intrinsically requires his/her ongoing involvement in a management or Director capacity.

During this interim period there are innocent suppliers/creditors of the new company, potentially many employees and other stakeholders who have an interest in the new company continuing to trade and thrive.

Accordingly, in such circumstances, there are other public interest concerns which must balance out the protection provided by Director Disqualification whilst preventing the new company from failing as a result.

When to Seek Leave to Act

An application for leave to act despite being disqualified is made under Section 17 Company Directors Disqualification Act 1986.  It must be made in formal Court proceedings, requiring an application, evidence in support and the Secretary of State is required to attend the hearing and draw the Court’s attention to public interest considerations.

Perhaps the most important issue for a Director making such an application to address is timing.  Where a Disqualification Undertaking is offered, then preparation and timing is of critical consideration (particularly when considering the Court timetable).

Where an application is proposed to be made following trial (and a potential Disqualification Order), then such preparation needs to be well in advance and the risks need to be addressed in some detail.

Where an application is proposed to be made during the disqualification proceedings, then facilitating the litigation to ensure this is made properly (and at a time when the Director is not then at personal risk of criminal proceedings) is also vital.

Key Considerations Before accepting an Undertaking

When accepting a Disqualification Undertaking a Director has to consider his/her personal liability, including that for potential Liquidator Claims and Compensation Orders.

However, there are also the “real life” factors to consider, most importantly how the Director’s new/current company is managed and directed once s/he is disqualified.

For more information on the process and important considerations to be made before seeking leave to act, please review our webpages which deal with the following:

  1. Court proceedings
  2. The Benefits of Seeking Leave to Act
  3. Risk of not seeking leave
  4. When should a Leave Application be made?
  5. Defending a Disqualification Claim v Seeking Leave
  6. Seeking Leave and Legal Costs
  7. Alternate Applications that can be made

Without an initial understanding of all of the above, it is highly likely that the wrong decision will be made.  This could either leave a Director unable to continue running his/her company in the short-term, a risk of criminal proceedings and/or (as a worst case scenario) his/her current company being unable to continue trading.

At Francis Wilks & Jones we have considerable experience of making applications for leave to act as a Director and pursuant to Section 17 Company Director Disqualification Act 1986.  Managed correctly and with the appropriate legal advice, and subject to your individual circumstances, a Director can obtain leave to act notwithstanding his/her disqualification.

Please call any member of our Director Services Team for your free consultation now on 0207 841 0390. Alternatively email us with your query at info@franciswilksandjones.co.uk and we will call you back at a time convenient for you.