How Does Director Disqualification Work And What Is The Insolvency Service’s Role?

  1. The Administrator Or Liquidator Completes A D Return Or D Report On The Conduct Or Misconduct Of Directors.

The directors of any company which enters into Administration or Insolvent Liquidation will be the subject of a D Return or a D Report which is submitted to The Insolvency Service by the Administrator or Liquidator. A D Return will confirm that there is no evidence of misconduct.
During formal insolvency proceedings, an Administrator or Liquidator will send a D Report to the Secretary of State detailing the misconduct of all directors who were in office during the last 3 years of the company’s trading. It is possible even if you have resigned as a director, you will be part of the investigation.

Top Tip: A D Report or D Return will be completed on all directors who held office within last 3 years even if they resigned before the date of Insolvency.
  1. The Insolvency Service Then Carries Out An Investigation Of Your Company And Your Conduct.

The Insolvency Service (acting on behalf of the Secretary of State) will decide whether it is in the public interest to begin investigations into the actions of individual directors and the company.
If you have received a letter from the Insolvency Service you may have seen a threat of disqualification when you received a formal questionnaire to complete seeking answers to questions on your failed company and your conduct as a director.

Top Tip: It is important to respond carefully and properly to all questionnaires, both as part of the liquidation and to the Insolvency Service as the response will determine the decision whether to pursue disqualification and your responses may be produced in evidence.
  1. Notice Or Pre-Action Letter (Referred To As A Section 16 Letter)

If The Insolvency Service considers it to be in the Public Interest that a director be disqualified because it thinks you haven’t followed or met your legal responsibilities as a director, they will send you a notice in writing of their intention to commence proceedings to disqualify you.

The notice will set out the grounds on which disqualification is to be pursued and Altion Lawcan advise and draft a response to the allegations made against you. The notice will set out:

  1. What the Insolvency Service think you’ve done that makes you unfit to be a director,
  2. If the Insolvency Service intend to start the director disqualification process,
  3. How you can respond.
Top Tip: We recommend you seek legal advice at this point. In our experience, directors who choose to respond to The Insolvency Service themselves, without having considered legal advice, can often have a detrimental effect on their case.

You Then Have Two Options Available

A) Wait for The Insolvency Service to take you to court to disqualify you – obviously you can defend the case in court if you disagree with their findings.
B) Give The Insolvency Service a ‘disqualification undertaking’ – this means you voluntarily disqualify yourself and ends this action against you.

It is worthwhile considering the second option if you have admitted that you have acted wrongly, which means that you are likely to receive lower penalty on the period of disqualification and complete the process much more quickly by lowering the set period of time. 

It is advisable to seek expert legal assistance in negotiating the period and terms of the Undertaking as this needs to be carefully scrutinised and agreed by the director.  It is important to ensure the terms do not leave the director open to other civil or criminal action.

Top Tip: If you choose to give a disqualification undertaking before the court proceedings are issued you will receive a discount on the period of disqualification and The Insolvency Service will not seek to recover their legal costs from the director. 

To make a free enquiry relating to a potential Directors Disqualification matter, call us today on 01908 414990,  or complete our Free Enquiry Request for a confidential and no obligation discussion and let one of our expert team discuss your situation and the options available to you.