The courts have the power to disqualify company directors under the Company Directors Disqualification Act 1986. This prevents individuals from acting as a director, or being involved in the creation, management or promotion of a company.
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Company Directors Disqualification Act 1986
The Company Directors Disqualification Act 1986 (CDDA) was introduced to protect the public from directors who are ‘unfit’ for the role. When enforced, it prevents individuals from ‘being directors of companies, and from being otherwise concerned with a company’s affairs’.
Company Director Disqualification regulations
The CDDA is broken down into various sections, each of which empowers the court to disqualify a director in different circumstances. Directors are typically disqualified under one of the following sections of the CDDA:
- Section 2 – disqualification on conviction of an indictable offence in connection with the promotion, formation or management of a company
- Section 3 – disqualification for persistent breaches of Companies Act legislation
- Section 4 – disqualification for fraud or other financial crimes in winding up
- Section 5 – disqualification on summary conviction for contravention of the Companies Act legislation
- Section 5A – disqualification for certain convictions abroad
- Section 8 – disqualification of director on finding of unfitness
- Section 10 – participation in wrongful trading
- Section 11 – undischarged bankrupts
Bringing proceedings under the CDDA
Sometimes, a director is disqualified by default of another type of court order, such as a bankruptcy order. Thanks to section 11 of the CDDA, it is an offence for a bankrupt to act as a director or a company, or to be directly or indirectly concerned in the running of a company.
Other times, the Secretary of State raises formal director disqualification proceedings. These are civil proceedings, rather than criminal proceedings. The individual in question has two options: defend the action or accept wrongdoing.
If you choose to defend a director disqualification but the court’s decision goes against you, you will be subject to a company director disqualification order. If you accept wrongdoing, you are invited to enter into an agreement called a director disqualification undertaking.
Company Director Disqualification Order
A company director disqualification order is a type of court order. It prevents a named individual from acting as a director, or being involved directly or indirectly in the running of a company. The ban lasts for the length ordered by the court. The minimum is two years. The maximum length of a director disqualification is 15 years.
Just because you defend a director disqualification, does not necessarily mean that you will be subject to a director disqualification order. The Secretary of State may decide to withdraw the case against you before the matter reaches a court hearing. Or, the court may find in your favour.
Company Director Disqualification Undertaking
The alternative to defending a director disqualification is a voluntary undertaking. This is when you accept wrongdoing and agree to the subsequent penalties. You are allowed to negotiate the terms of a voluntary undertaking, or have a solicitor negotiate on your behalf. You may be able to reduce the length of the disqualification being sought by the Secretary of State.
Penalties available under the Company Director Disqualification Act 1986
A company director who is disqualified under the CDDA can face the following penalties:
- A ban on being the director of a limited company or limited liability partnership for between two and 15 years
- A compensation order, which is issued by the court where the individual’s actions have caused loss to one or more creditors
- Other restrictions, such as a ban on being a receiver of a company’s property
These are civil proceedings, as opposed to criminal proceedings. This means that criminal penalties such as custodial sentences are not imposed, unless the terms of the director disqualification are breached. However, criminal proceedings may run concurrently if a criminal offence is also alleged, such as fraud.
It is a criminal offence to break the terms of a director disqualification order or undertaking. Those found guilty of such an offence can expect to face up to:
- Two years’ imprisonment for a conviction on indictment
- 6 months’ imprisonment and a fine for a summary conviction
Company Director Disqualification register
If a director is disqualified, their name is added to the Companies House disqualified directors register. The Insolvency Service also publishes details of recent director disqualifications. The latter can be accessed by the public for three months from publication.
Company Director Disqualification time limit
The Secretary of State has a limited amount of time to bring director disqualification proceedings. The time limit is three years from the date the company was dissolved or made insolvent. There is no time limit for live companies.
Can a solicitor represent me?
You are entitled to legal representation during both criminal and civil proceedings. If the Secretary of State is threatening to disqualify you as a director, please contact us at Altion Law. We help individuals across the country who are at risk of a company director ban.