Everything you need to know about UK director disqualifications. For further information, or for expert legal advice, contact us at Altion Law.
What is a Director Disqualification UK?
A director disqualification is when an individual is banned from acting as a company director, and is banned from the formation, promotion or management of a company. This individual will either be a current company director, or a former company director.
What are the grounds for a Director Disqualification UK?
A director will be disqualified if he/she has failed to meet their legal responsibilities.
There are various grounds for director disqualification, including:
- Being convicted of a criminal offence in relation to the promotion, formation, management or liquidation of a company
- Wrongful trading, where a company continues to trade despite not being able to pay its debts
- Unfit conduct (see below)
What is considered unfit conduct for a Director?
Examples of unfit conduct include:
- Fraudulent behaviour
- Failing to keep/deliver proper company accounting records
- Failing to prepare/file company accounts and other statutory returns to Companies House
- Not preparing/filing company tax returns or paying tax due to HMRC
- Using company money or assets for personal benefit
- Failing to co-operate with the official receiver/liquidator’s requests
Who is banned from being a Director?
You cannot be a company director if you are:
- Currently subject to a director disqualification order
- Currently subject to a director disqualification undertaking
- An undischarged bankrupt
- Currently subject to a debt relief order or bankruptcy restrictions
Who investigates company Directors?
The Insolvency Service usually investigates company directors. However, investigations may also be conducted by Companies House, the Competition and Markets Authority or another UK regulatory body.
What triggers an investigation?
It is standard practice to investigate directors who are going through insolvency proceedings. This may uncover evidence of wrongdoing, leading to a more in-depth investigation.
A director may also be investigated if a complaint is made against them by a third party, such as an aggrieved creditor. An investigation may also be triggered if another regulatory authority raises concerns.
Are there Director Disqualification time limits?
Yes. The Insolvency Service has three years to raise proceedings against the director of a dissolved or insolvent company. The three-year time limit starts from the date the company was dissolved or made insolvent. There are no time limits for live companies.
What is a Section 16 letter?
A Section 16 letter is a formal notice that the Secretary of State intends to pursue director disqualification proceedings against you. It details the allegations being made, the length of the disqualification being sought, and the options open to you.
We strongly advise speaking to our solicitors as soon as you receive a Section 16 letter.
Can I speak to a Director Disqualification solicitor?
Yes. If you are being investigated as a company director, or you are being threatened with legal action, then you should instruct a director disqualification solicitor. At Altion Law, we have a specialist team of solicitors who offer legal advice and representation to current and former company directors. All discussions are confidential.
What legislation deals with UK Director Disqualification?
UK director disqualifications are dealt with under the Company Directors Disqualification Act 1986 (CDDA).
Can I avoid a Director Disqualification?
Yes. You can avoid a director disqualification by proving that you have done nothing wrong. This requires a clear explanation as to why you acted in the way you did, and why this does not warrant a director disqualification.
Can I defend a Director Disqualification UK?
Yes. You can defend a director disqualification where you are facing allegations of unfit conduct. A defensive challenge can be raised as soon as you become aware that such allegations have been made. This may prevent the matter from being taken any further. Otherwise, you can defend yourself in court.
We recommend that you instruct our solicitor to help you with a defence. We can advise you on the best approach and the prospects of success. Sometimes, it is simply a matter of clearing up a misunderstanding with the Insolvency Service.
What is a Director Disqualification Undertaking?
A director disqualification undertaking is when you accept wrongdoing as a company director and agree to a director disqualification. The agreement is made between you and the Secretary of State. It is made on a voluntary basis. It avoids the need for court proceedings.
You can negotiate the terms of a director disqualification undertaking. It takes effect 21 days after being signed.
How long does a Director Disqualification UK last?
A director disqualification can last between two and 15 years. If the case goes to court, the court decides how long the disqualification should last. If the case is settled by way of a voluntary undertaking, the length of the disqualification can be negotiated between the parties. Either way, a disqualification cannot last for less than two years, or more than 15 years.
There are three distinct brackets of director disqualification:
- 2 to 5 years for reckless or negligent conduct
- 6 to 10 years for serious misconduct
- 11 to 15 years for serious unfit conduct including dishonesty
What are the consequences of a UK Director Disqualification?
The consequences of a director disqualification are that you cannot be a director for any registered or unregistered company in the UK, or an overseas company that has links to the UK. You also cannot take part, directly or indirectly, in the formation, management or promotion of a company. This covers limited companies and limited liability partnerships.
Other restrictions are imposed by various UK organisations. This means you also cannot:
- Be a charity trustee
- Be a school governor, a temporary school governor or a member of a foundation body
- Be a pension trustee
- Be a member of a police authority
- Be a director, trustee or committee member of a housing association/registered social landlord
- Sit on health boards or social care bodies
- Practice as a solicitor, barrister or accountant
- Act as an insolvency practitioner
- Be a receiver of a company’s property
Your name will be added to a disqualified directors register. You may also be subject to a compensation order.
Find out more about the Consequences of a Director Disqualification.
What is a Compensation Order?
A compensation order is a type of penalty that can be imposed alongside a UK director disqualification. It is a court order that demands the payment of compensation to creditors.
A compensation order may be issued where the individual’s actions have caused loss to one or more creditors. It can also be issued where an individual breaks the terms of their director disqualification.
Is there a Disqualified Director list?
Yes. The names of disqualified directors are added to the Companies House disqualified directors register. This can be accessed by the public. The Insolvency Service also publishes details of recent director disqualifications. The details of each case are available to read for three months from the date of publication.
What are the consequences of breaching a UK Director Disqualification?
Breaching a director disqualification is a criminal offence. Criminal charges may be laid. If a defendant is found guilty, the court can impose a maximum sentence of:
- Two years’ imprisonment for a conviction on indictment
- 6 months’ imprisonment and a fine for a summary conviction
The court may also order the payment of compensation to creditors who have suffered a loss.
Can a Disqualified Director be a shareholder?
Yes. A director who is currently subject to a disqualification order or undertaking can still be a shareholder, as long as their ban does not extend to ownership. However, this is something of a grey area, as the individual must not be involved in the formation or running of the company in any way, be it directly or indirectly.
Can Directors of dissolved companies be disqualified?
Yes. The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which came into effect on 15 February 2022, allows the Insolvency Service to pursue proceedings against directors of dissolved companies.
Can Directors of insolvent companies be disqualified?
Yes. The Insolvency Service can pursue proceedings against directors of insolvent companies, even if they have already been dissolved.
Can Directors of trading companies be disqualified?
Yes. Directors of companies that are live and trading can be disqualified. The individual is not allowed to appoint a shadow director to act under their instructions while they serve the length of the ban. A disqualified director must have nothing to do with the formation or running of a company, whether directly or indirectly.
Can I appeal a Director Disqualification?
Yes. You can appeal a director disqualification order. However, you will need strong grounds upon which to make an appeal. Grounds include:
- The judge made an error in law
- The penalty is disproportionate
- New evidence has come to light
Can I reduce the length of a Director Disqualification?
Yes. You can apply to reduce your disqualification period, but only if you entered into a voluntary undertaking. An application must be made to the court. The court will only accept the request if there is good reason to reduce the length of the disqualification.
You cannot apply to reduce the length of a director disqualification if you defended disqualification proceedings in court, and were subsequently subject to a disqualification order.
What if I really need to work as a Company Director?
If you want to work as a company director, despite being subject to a company director disqualification order/undertaking, then you can apply for ‘leave to act’. You must make a court application explaining why you should be allowed to work as a company director, or perform the duties you are currently exempt from.
Do you need a UK Director Disqualification lawyer?
If you are facing director disqualification proceedings and need expert legal advice, call us today on 01908 414990, email us at email@example.com or complete our free enquiry form and we will call you back.