If you are made bankrupt, you are automatically banned from being a company director. The disqualification lasts until you are discharged from bankruptcy, or until the end of a bankruptcy order/undertaking.
Are you a company director being threatened with bankruptcy proceedings? Get confidential legal advice from our solicitors.
Bankruptcy: grounds for Director Disqualification?
There are lots of reasons why someone may be disqualified as a company director – including bankruptcy.
Bankruptcy is when you cannot repay your outstanding debts and meet your financial obligations. You can apply for bankruptcy yourself, or one of your creditors can make a bankruptcy petition to the court.
If the court determines that you should be made bankrupt, it issues a type of court order called a bankruptcy order. This imposes various restrictions on your life, one of which is that you cannot act as a company director.
What happens when a company director is made bankrupt?
Director Disqualification is automatic under the terms of a bankruptcy order. If you are a company director when you are made bankrupt, then you have to resign immediately.
There are no director disqualification proceedings as there are when the conduct of a company director is called into question. The disqualification is immediate and automatic.
What effect does bankruptcy have company directors?
As a bankrupt, you cannot act as the director of a limited liability company, or be a partner of a limited liability partnership. Also, you cannot take part, directly or indirectly, in the creation of a new company. Nor can you promote or manage a company.
How long is a bankrupt individual disqualified as a director?
So, how long does a director disqualification last when you are made bankrupt?
This depends on the circumstances.
You cannot be a company director until the bankruptcy has been discharged. In the majority of cases, this happens automatically after 12 months. This means you must resign as a company director on the date your bankruptcy order is issued. You may then become a company director again exactly one year later.
However, the situation is different if you are subject to a bankruptcy restriction order, or a bankruptcy restriction undertaking.
A bankruptcy restriction order is an order issued by the court. It extends the length of your bankruptcy restrictions beyond the usual 12-month period. This typically happens where there has been some kind of ‘wrongdoing’ on your part, such as fraud or dishonesty.
A bankruptcy restriction undertaking is effectively the same thing, but you agree to the extended restrictions voluntarily. This means you accept the wrongdoing and you do not have to go to court.
A bankruptcy restriction order/undertaking can last for between two and 15 years. You cannot be a company director while such an order or undertaking remains in effect. Once it comes to an end, you are officially discharged as a bankrupt, after which you can act as a company director once again.
Exception to the rule – you have leave to act
There is one exception to the rules set out above. You can be a company director while you are an undischarged bankrupt if you get leave to act. This is when you request the court’s permission to act as a company director, and this request is granted.
What happens if you breach the terms of the bankruptcy order?
Breaching the terms of a bankruptcy order without the court’s permission is a criminal offence. If you act as a company director, despite a disqualification being in place, then you could face up to two years’ imprisonment. You may also become personally liable for any debts the company accrues while you are breaching the terms of the order/undertaking.
Can I defend a bankruptcy petition?
Knowing that you will lose your ability to act as a company director might make you more determined than ever to fight a bankruptcy petition.
At Altion Law, our solicitors can help you contest a bankruptcy action. No one wants to become bankrupt. But if you rely on being a company director to earn an income, then it will be all the more important to avoid a bankruptcy order.
Our solicitors have extensive experience defending statutory demands and bankruptcy petitions on behalf of directors. We can also explore the alternatives to bankruptcy with you, allowing you to regain control of your finances while retaining your role as a director.
Get expert legal advice
Being made bankruptcy means that you are automatically disqualified as a company director. If this is going to be problematic for you, it is vital that you defend bankruptcy proceedings. We can help you.
Getting early legal advice is the best way to secure a positive outcome. We offer a free, confidential enquiry with a solicitor.