The Benefits of Seeking Leave to Act
A director of a company which has failed or entered into insolvency proceedings often faces the risk that after insolvency s/he could be disqualified from continuing to act as a director for a specified period of years.
This period of years can be between 2 – 15 years and for many people (particularly those above 40 years old) this may effectively end any future possibility of running a successful business.
Alternatively, a director may be disqualified, or face disqualification, in a number of other circumstances including a failure to file their current company’s accounts or confirmation statements on time and it is often the case that this comes as a surprise (at least initially) and a commercial remedy is required to rescue the director and his current company.
Clarification of Risk
It may be that you are disqualified from acting as a director and you choose instead to take employment in a company, or continue your role in an employed capacity.
This latter option is often pursued by directors who may own the new company in whole or part, and indeed when disqualified as a director that individual is not prohibited from holding shares.
However it is almost always the case that by acting as an employee, and by being the main or sole shareholder, a director faces the risk of “overstepping” his role and acting in the management of the company or as a shadow/De Facto Director.
Instead of running such a risk, a director should consider either applying for leave to act as a director of the company or issue an alternate application for the appropriate declarations by the Court as to his/her role.
Irrespective of the route chosen, by seeking leave to Act a director deals with any future risk that s/he could be found to be acting whilst disqualified with the potential criminal consequences that would then arise.
Reduction in Legal Costs
Although issuing an application for leave to act as a director does not sound a good formula for saving legal costs, when considering the options available upon receiving notice of threatened disqualification proceedings it provides a more commercial solution to resolving the proposed claim by the Secretary of State.
Firstly, you may have less exposure to your own solicitor’s legal costs if matters can be tied up quickly by offering a Disqualification Undertaking and, if you offer such an undertaking early enough, you will not face any of the Secretary of State’s legal costs incurred in investigating the previous company matters, in drafting their application and evidence and otherwise (which could potentially be a substantial cost saving).
If this can be combined with an application for leave to act as a director notwithstanding the Disqualification Undertaking offered, then the overall cost saving is likely to be considerable.
Expedition of Disqualification Proceedings
From the commencement of the insolvency proceedings through to Disqualification of a director, this period could be as long as 4 years (or more).
However, if a commercial approach is taken and a Disqualification Undertaking offered in combination with an application for leave to act, then matters will be resolved very quickly and the director can get on with their life.
This benefit has other values (aside from the legal cost point addressed above) – it enables directors to focus on current priorities (including their business and personal matters) and so the application for leave can be a small cost to pay to reclaim the time to address such matters.
Endorsement of Director
The granting of leave for a director to continue or commence acting in the management and directorship of his/her company will to some degree provide comfort to the director that s/he is not considered to have acted in any fraudulently in respect of the previous business.
As we have stated elsewhere the purpose of Director Disqualification is to protect the public and should not be considered as any indication of guilt – indeed many Directors are disqualified for passive misconduct (i.e. failing to act) rather than any deliberate actions.
For this reason, if a director is granted leave by the Court to continue acting as a director then it is a reflection of the Court’s view that the public interest remains protected.
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 a director will obtain leave to act notwithstanding his/her disqualification.
Please call any member of our Director Services Team for your consultation 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.