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Director disqualification – summary
A director disqualification means you are legally banned from acting as a company director or being involved in company management without the court’s permission. Under the Company Directors Disqualification Act 1986, bans usually last between two and fifteen years depending on the seriousness of the misconduct. Acting while disqualified is a criminal offence. According to the Insolvency Service, more than 1,000 directors were banned in 2024–25, many for abusing Bounce Back Loans.
What does director disqualification mean under the law?
Director disqualification is a serious civil sanction. It prevents an individual from being a director, or from being involved in the promotion, formation or management of a company without the court’s permission. The law that governs disqualification is the Company Directors Disqualification Act 1986 (CDDA).
- Section 1 of the CDDA sets out the effect of a disqualification.
- Section 6 deals with disqualification for unfit conduct in relation to insolvent companies.
- Section 16 requires the Secretary of State to give at least ten days’ notice before an application is made.
- Section 17 allows a director to apply for permission to continue acting, subject to strict conditions.
The policy behind disqualification is to protect the public and creditors from unfit conduct. It is not meant to punish honest mistakes but rather to stop those whose conduct shows they cannot be trusted to manage a company responsibly.
Why did disqualifications increase in 2024–25?
The Insolvency Service reported that 1,036 directors were disqualified in 2024–25, one of the highest totals on record. Of these, 736 cases involved misuse of pandemic support loans, mainly Bounce Back Loans.
This surge reflects the government’s determination to pursue directors who misused public funds. It also reflects stronger reporting obligations under the Small Business, Enterprise and Employment Act 2015, which requires insolvency practitioners to report on director conduct in all insolvencies. These reports, known as “D Reports,” are a primary source of information for the Insolvency Service.
- The figures also show that the average disqualification length was eight years, placing most bans firmly in the middle bracket of seriousness.
- This underlines how seriously the courts are treating misconduct linked to COVID loan schemes.
What are the most common reasons directors are banned?
While Bounce Back Loan abuse has dominated recent cases, it is not the only reason directors are disqualified. Other grounds include:
- Trading to the detriment of creditors, continuing to take on debts when the company was already insolvent.
- Failing to keep or preserve proper accounting records, in breach of the Companies Act 2006.
- Misfeasance or breach of fiduciary duty, such as transferring assets for personal gain.
- Persistent non-payment of taxes owed to HMRC.
- Serious breaches of regulatory obligations, particularly in investment schemes.
Schedule 1 CDDA sets out the factors that courts consider when deciding if conduct is unfit. These include misfeasance, breaches of duty, and the extent of loss to creditors.
Our team at Francis Wilks & Jones has over 20 years’ experience defending all allegations of misconduct as set out by the Insolvency Service. We have seen them all – and our experience has helped 100’s directors successfully defend claims and get on with their lives.
How long can bans last and how are periods decided?
Disqualification periods range from two to fifteen years. They are grouped into three brackets:
- Two to five years for less serious misconduct.
- Six to ten years for more serious cases, including most Bounce Back Loan abuses.
- Eleven to fifteen years for the most serious dishonesty and repeat offences.
Courts assess factors such as the amount of creditor loss, the level of dishonesty, whether the misconduct was repeated, and whether the director cooperated. In practice, the mid-range bracket is the most common. The 2024–25 average of eight years shows how the courts are increasingly treating misconduct as serious.
What happens if you act while disqualified?
Acting while disqualified is a criminal offence under section 13 CDDA. The penalties include imprisonment of up to two years, fines, and personal liability for the company’s debts.
- The prohibition extends beyond being formally appointed as a director.
- It also covers acting as a shadow director or otherwise taking part in company management.
- The Insolvency Service and HMRC monitor compliance, and prosecutions for breach are not uncommon.
The consequences are not only legal. Being prosecuted for breach can destroy your reputation and make it impossible to attract future investment or employment in regulated sectors. We regularly advise directors accused of acting in breach of their disqualification order
How do proceedings usually start?
The process usually begins when a company becomes insolvent. Insolvency practitioners must report on director conduct within three months. If the report suggests unfit conduct, the Insolvency Service may investigate further.
Before applying to court, the Secretary of State must send the director a section 16 notice. This gives at least ten days’ warning of the proposed application. The notice sets out the allegations and the evidence relied upon.
This stage is critical. It is the best opportunity for directors to respond with evidence, explanations or proposals. Directors can also negotiate a disqualification undertaking. This is a voluntary agreement to be disqualified, usually in return for a modest reduction in the period.
Taking legal advice at this stage is VITAL. It is a chance to get the entire claim dropped.
Can directors stay in business with section 17 permission?
Yes. Section 17 CDDA allows disqualified directors to apply for permission to continue in business. This is known as “leave to act.”
The application must be made using Form N208. The director must explain why their involvement is necessary, identify the companies concerned, and propose safeguards to protect the public. Courts will not grant permission lightly. They expect full and frank disclosure, evidence of business need, and credible proposals for oversight.
Permission is often granted but subject to strict conditions. These may include limits on borrowing, requirements to file regular accounts, or the appointment of an independent finance director. Cases such as Re Godwin Warren Control Systems plc show how the courts tailor conditions to the circumstances.
Our team has 100% record of success in section 17 applications over a 20 year period. Read more about this in our fantastic free section 17 guide – How To Stay a Director .
What practical steps should directors take if threatened with disqualification?
The most important step is to act quickly. Do not ignore a section 16 notice. Early legal advice can make a significant difference.
Directors should gather evidence such as bank statements, management accounts, board minutes and correspondence to show that their conduct was reasonable. They should be ready to explain decisions that may look questionable with hindsight.
If the evidence against them is strong, negotiating an undertaking on reduced terms may be the best option. If the company needs them to remain in management, they should begin preparing for a section 17 application, including governance reforms and independent oversight.
Francis Wilks & Jones has extensive experience defending directors, negotiating undertakings, and preparing section 17 applications. More guidance is available on our Director Disqualification hub.
