Alternate Applications that can be made
A director facing disqualification proceedings has limited options available – as with all litigation it is often the case that they must defend themselves or submit to the outcome sought.
When it is the Secretary of State threatening proceedings, this can often be more daunting as there appears to be no ability to reach a commercial settlement or dissuade the claim on the basis of a legal costs risk (although this can be successful if you have a very obvious and strong defence).
Unless a director has the resources and will/need to defend a Disqualification Claim, the most common commercial approach to take is to offer a Disqualification Undertaking and then apply for leave to continue acting as a director.
However, it is not always the case that an application for leave is necessary and indeed there may be circumstances where a different type of application, with different evidential thresholds, is more appropriate.
We discuss these circumstances below.
Acting in the Management of a Company
Section 1 of the Company Directors Disqualification Act 1986 prohibits a disqualified director from acting as a director of a limited company without leave of the Court but also prohibits any disqualified individual from acting in the,
“promotion, formation or management of a limited company unless (in each case) he has leave of the court”.
Accordingly, rather than applying for leave to act as a director, an individual subject to disqualification may apply for leave to act in any role which may fall within the above definitions.
This has two applications:
- Firstly, for many individuals they may act as a senior manager or in a consultancy capacity and therefore do not have any requirement to be a Director, but need the Court’s permission to act in a senior role which may fall within the above definition.
- They may see themselves acting in some management capacity – perhaps in their role as shareholder or in an advisory role as an accountant (although recent statutory changes have limited this risk) and thus need permission to continue fulfilling such a role.
As with seeking Leave to Act, the benefit of the Court granting permission to continue in such a role will protect the individual from future negative repercussion.
The benefit of such an application is that the public interest consideration is considered to be lower, and therefore the risk of not securing such an order also lower.
Declarations that individual not in breach of his/her disqualification
Often an individual disqualified may continue with their current occupation or continue holding shares in a small private company.
In both circumstances, they face a risk that they could accidentally breach their disqualification by overstepping their authority as shareholder/employee.
Where such risks could potentially occur then the individual may wish to consider applying to Court with a detailed breakdown of their role and seeking an order declaring that they are not in breach of their disqualification.
If such an order is sought and obtained, this can protect against any future claim that the individual was acting as a director or in the management of their new company, and may protect against any criminal proceedings brought for a breach of their Disqualification Order or Disqualification Undertaking.
Such an application may be appropriate where faced with the risk of such criminal proceedings being issued, as an order declaring that the individual is (or was) not in breach of the Disqualification will eliminate any risk of prosecution.
However there is associated risks with both of these application.
The most important of which is that the individual’s job description or role (as described in the application) may alter. If such a change subsequently occurred, it is arguable that the leave granted by the Court may fall away or (at least) no longer protect the individual from future claims that s/he was acting in breach of their Disqualification.
At Francis Wilks & Jones we regularly deal with Director Disqualification proceedings and can advise on such applications and your best options available.
Please call any member of our Director Services Team now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.