Disqualification undertakings are often offered by the Secretary of State to avoid formal legal proceedings. It is vital to take proper legal advice before accepting an undertaking and consider all the risks as well as the short term benefits. Disqualification undertakings can seriously affect your career prospects and even lead to a personal compensation order claim against you. Our experienced team can help make sure you reach the decision which is right for you.
Background to the undertaking regime
Voluntary disqualification undertakings were introduced in 2000 to allow directors facing director disqualification to more easily agree to be disqualified.
Until that time, directors faced with the threat of being disqualified could not voluntarily agree to a disqualification. Instead, they had to await the issue of the director disqualification claim before deciding whether to file evidence in defence proposing a resolution at Court which were known as Carecraft proceedings. This was costly, time consuming and inefficient.
The changes in 2000 provided a remedy to this problem and were introduced in Section 1A of the Company Director Disqualification Act 1986. This provided that in certain specified circumstances the Secretary of State can accept an undertaking from a director, for a period specified that
“he/she “will not be a director of a company, act as a receiver of a company’s property or in any way, whether directly or indirectly, be concerned or take part in the promotion/formation or management of a company unless (in each case) he has leave of a Court”.
Period of disqualification
The period of disqualification offered by way of disqualification undertaking is vitally important to consider. Disqualification periods will usually fall into one of the following brackets:
- Less serious: 2-5 years.
- Serious: 5-10 years
- Very Serious – 11-15 years
Whatever your current circumstances, it is always sensible to try and negotiate the lowest period of disqualification as possible. Not only is this down to the fact that the disqualification will naturally come to an end more quickly, but it will also open up the opportunity to apply to court for permission to become a director again even if you are still disqualified. Accepting whatever is offered to you at the outset without attempting to negotiate the period down can have unintended long term consequences. If possible, it is always best to be in the lower bracket – and our legal expertise can help you achieve this.
Should I accept a disqualification undertaking?
Before accepting a disqualification undertaking, it is vital to consider what benefits it will provide and what risks you must accept by entering into it. Our experts can help talk these through with you so that you fully understand the implications of agreeing to an undertaking – in the short, medium and longer term. Whilst it can be difficult to think too far forward when dealing from the fallout of a company liquidation and the threat of disqualification, we can help you step back and consider what might be best for you in the longer term. Equally, if you have dusted yourself down and got back on your feet, the threat of a disqualification can be highly unsettling. But again, we can help take the time to make the right decisions for your present situation.
Some further useful reading is set out below:
- benefit and purpose of a disqualification undertaking;
- when can you agree to be disqualified;
- schedule of misconduct;
- risks and consequences of a disqualification undertaking;
- applying to reduce a disqualification undertaking period;
- court permission to remain a director despite disqualification.
Once a disqualification undertaking is accepted on behalf of the Secretary of State it will commence 21 days after acceptance. Voluntary undertakings are therefore important matters to consider.
Risks and consequences of accepting an undertaking
There are serious consequences of being disqualified and this should always be thought about prior to entering into a disqualification undertaking. These range from damage to reputation to implications to current and future career prospects.
In addition, since 2015, there has been a new regime called “compensation orders” that mean that anyone accepting a voluntary undertaking might be pursued personally for payment of monies back into a company which became insolvent. Therefore, there are now dangers of going down the voluntary undertaking route which didn’t exist before.
These risks should always be considered before accepting a voluntary undertaking. Our expert legal team at Francis Wilks & Jones can help you with the entire process and make sure that if you are accepting a voluntary undertaking, it is done with the minimum risk possible to you and that you negotiate the period down as far as possible.
How to remain a director after giving a voluntary undertaking
It is possible to couple the voluntary disqualification undertaking with an application to court to remain as a director of a business or seek permission to remain involved in the management of a business. We are specialists in these types of applications and have 100% success rate in acting in them going back to 2002. This is another reason why our expert legal advice is recommended. We can help advise whether the right route is to accept an undertaking, avoid costly legal proceedings and make an application to remain acting as a director.
Whatever your circumstances, if you are faced with an offer of a voluntary undertaking, we would recommend you speak to our team first. With 20 years’ experience under our belts and 100s of directors helped – we have seen pretty much every situation there is to see. Even if this is done at the simplest of levels, it can save you significant time effort and worry later on. Contact one of our expert team today.
If there was ever a star rating for law firms, Francis Wilks & Jones would score five stars plus. Professional and pro-active, they were able to understand my problem quickly, provide expert advice, outline a solution and put it into place with a successful outcome. I should have gone to them sooner.A client we successfully defended in director disqualification and insolvency related proceedings