Timing and urgency – rules in disqualification claims

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

Overview

Where a company is placed into insolvency proceedings, the Insolvency Service (an executive agency acting on behalf of the Secretary of State) will immediately begin looking into what lead to the insolvency and whether there was any misconduct by directors of that company.

• this will result in a letter to directors normally requiring them to complete a comprehensive questionnaire and attend an interview to account for the company’s assets, liabilities, financial position and their management of this company;
• following this, further enquiries may be made and ultimately a decision may be reached to investigate further with a view to seeking the disqualification of that individual from continuing to act as a director of any company trading in the UK.

Such investigations may comprise enquiries of

• co-directors;
• the company’s accountants;
• creditors;
• employees; and
• customers of the company.

Eventually a decision will be reached, namely that sufficient evidence has been collated to enable a disqualification claim to be issued.

How long does the insolvency service have to issue a claim?

A disqualification claim is required to be issued against a director within a specific period of time as set down by the relevant legislation. Unlike conventional commercial claims, this limitation period is far shorter and this is the reason for investigations to be commenced immediately following insolvency.

The limitation applicable to disqualification Claims was historically 2 years under the Company Directors Disqualification Act 1986. This period commences from the date of liquidation or administration. However, from 2015, the limitation period was extended to 3 years for any misconduct preceding October 2015.

Notice of the intention to issue a disqualification claim

Once a decision has been reached to issue proceedings, section 16 of the Company Directors disqualification Act requires that a letter providing such notice is sent to the director(s) to be subject to such proceedings. This is referred to as, not unsurprisingly, the section 16 letter.

The section 16 letter is required to give a minimum of 10 days’ notice before a disqualification claim is issued, although in reality the period is longer than this.

The need to act quickly

There are a number of options available to you once you have received the section 16 letter. However, and most importantly, you need to act quickly to ensure matters do not escalate and proceedings are issued against you.

• if a disqualification claim is issued against you, then you are immediately liable for the Secretary of State’s legal costs, which can extend back to when the disqualification proceedings were drafted by solicitors, regardless as to whether you immediately offer a disqualification undertaking;
• we address the issue of legal costs in disqualification proceedings generally and in respect of circumstances where a disqualification undertaking is offered after issue of a disqualification claim.

Most importantly, a director (unless already advised) needs to seek specialist legal advice as soon as possible.

How long can proceedings be delayed?

The issue of disqualification proceedings will be considered once the Insolvency Service have concluded their investigations and have complied with all pre-action requirements relevant to litigation proceedings.

These pre-action requirements include a requirement to thoroughly engage with the proposed defendant (i.e. the director) to ensure all information relevant to this matter has been considered and the merits of the disqualification claim have properly been evaluated following factual and legal representations provided by the director (and/or his/her solicitors).

From experience, the issue of disqualification proceedings may be delayed right up until the very end of the limitation period (see above) whilst the Insolvency Service properly consider your representations.

However, this willingness to listen should not be taken for granted nor exploited and you will be unable to delay the issue of disqualification proceedings without a good reason or well considered case being put forward.

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At Francis Wilks & Jones we are able to provide such advice on strategy, timing, providing representations, defending a disqualification claim and seeking court permission to be a director, preferably at an early stage or even before or after issue of a disqualification Claim.

I was delighted by the work done by the team at FWJ and cannot recommend them highly enough. Their legal and tactical knowledge was spot on. I can now continue to grow my business free from the worry of my original disqualification

A director we defended against a disqualification claim