When should a Leave Application be made

Where a Director faces the prospect of being subject to a Disqualification Claim or, and ultimately, a Disqualification Order, then they may not wish to consider contesting the proceedings.

Litigation is not a comfortable experience – it is costly, time consuming and not everyone is easily able to reach a decision to contest such proceedings.

However, there is the unavoidable problem of how do you ensure a well-run and profitable company continues to trade without perhaps the most important part, the Director, being able to make any decisions or otherwise manage or direct the company’s affairs?

This largely depends upon timing and where the Director is – have proceedings been issued or not?  If so, is a trial imminent?  What are the costs risks and are there any offers which may protect on costs?

We make brief comments on such circumstances below – although we always recommend that specialist legal advice should be sought tailored to your personal circumstances.

Pre-Issue Disqualification Undertaking

Once a Director has received notice of the intention to commence Disqualification Proceedings then s/he may either make representations on the claimed grounds of misconduct or immediately accept the invitation to enter into a Disqualification Undertaking.

If that Director also intends to apply for leave to act (which is an option set out in the guidance notes provided by the Insolvency Service and accompanying the Section 16 Letter then this decision, and steps taken to commence the application, needs to be reached and commenced in advance of offering the Disqualification Undertaking.

However, the timing is crucial – too early and you will lose the opportunity to persuade the Secretary of State of the strength of your case and too late and you will not have sufficient opportunity to either put your application together or obtain a hearing date before any disqualification period commences.

During Director Disqualification Proceedings

As stated here there are various stages during which a Disqualification Undertaking can be offered to the Secretary of State,

Such an offer may be by reason of the escalating legal costs a Director is facing, both his/her own legal costs and the Secretary of State’s rising legal costs, or for personal/business reasons.

If the undertaking offered is part of a strategy to obtain leave to Act as a Director of a current company, then it is important to ensure the application and evidence in support of the Leave Application is prepared well in advance of making the offer.

There are further issues which can cause issues, most commonly the Court timetable when listing a hearing of the Leave Application, and any ongoing directions which may exist in the current proceedings.

Subject to this, the same process applies as for any other application for Leave to Act.

Pre Trial

Quite often in proceedings there reaches a point, perhaps just before trial, that the parties seek to manage an exit from the disqualification proceedings just before the trial. 

The reason for this is that trial costs are very expensive – there will be the devoted time of a number of solicitors and barristers solely focused on the Disqualification Claim and, ultimately, all of these costs (potentially arising over a number of days) are paid by the losing Claimant or Defendant.

For the Secretary of State (as Claimant) this risk is not of primary concern, as the Secretary of State acts in the Public Interest.  However, it remains nevertheless in the public interest for legal costs not to be wasted in such circumstances.  In such circumstances it is not unusual for the Secretary of State to seek to discontinue a Disqualification Claim in the public interest.

However, for the Director, such costs risks are of great concern and they may serve to double the costs incurred to date and, with the risk of paying the Claimant’s legal costs, even quadruple the Director’s costs liability.

In such circumstances it is also not unusual for a Director to offer a Disqualification Undertaking before trial and then perhaps ask for the first day of trial to be used either for the decision on the disqualification period, deal with the Order as to legal costs or hear the application for Leave to Act.

After a Disqualification Order is made

Where a Director has faced trial and an Order is made for his/her disqualification, this maybe on the final day of trial or at some point later when the judgment has been considered.

In the first scenario, the Director will then have 21 days to prepare any application for Leave to Act, ensure s/he is able to meet the legal costs and ensure a hearing date can be convened within that period.

If the judgment is reserved until much later, time is afforded for the Director (with legal advice) to consider whether there is a risk of a Disqualification Order being made and make arrangements to compile the necessary application for Leave to Act.

At Francis Wilks & Jones we deal with Director Disqualification proceedings and applications for Leave to Act regularly and can advise on your best strategy and the risks you face, as well as ensuring the timely preparation of the necessary papers to make this application.

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.