Director Disqualification proceedings are usually pursued by the Insolvency Service. Here, we explain what the Insolvency Service is, what role they play in Director Disqualification, and what you should do if the Insolvency Service is threatening to disqualify you.
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What is the Insolvency Service?
According to the gov.uk website, the Insolvency Service is: “a government agency that helps to deliver economic confidence by supporting those in financial distress, tackling financial wrongdoing and maximising returns to creditors.”
The Insolvency Service deals with all matters relating to insolvency including bankruptcies, administrations and liquidations.
Insolvency Director Disqualification
So, where does the Insolvency Service fit into director disqualification proceedings?
Ordinarily, what happens is that a company cannot repay its debts so enters into formal insolvency proceedings. The Insolvency Service then investigates the company, including the conduct of the directors. If the Insolvency Service finds evidence of director misconduct, it makes an application to the court to have that director disqualified.
The Insolvency Service can also investigate companies which have been dissolved without entering into formal insolvency proceedings, and companies which are still trading. This typically happens when information obtained by the Insolvency Service suggests serious corporate abuse.
Either way, the director receives a Section 16 letter from the Insolvency Service. This details the allegations against the director. The director has two options: defend the accusations or accept wrongdoing and enter into a voluntary Director Disqualification undertaking. Director disqualification can last between two and 15 years.
If you have received a Section 16 letter from the Insolvency Service, please contact us at Altion Law straightaway. We can help you through the next steps.
Insolvency Service, Bankruptcy and Director Disqualification
As mentioned above, the Insolvency Service also deals with personal bankruptcies. This is when an individual (as opposed to a company) cannot pay their debts. Someone may apply for bankruptcy themselves, or one of their creditors may make a petition.
A director will be automatically disqualified if he/she is made bankrupt by the court. This disqualification is immediate – there are no Section 16 letters or director disqualification proceedings.
During 2021/22, there were 314 bankruptcies and debt relief orders or undertakings. Anyone who is subject to an undischarged bankruptcy is banned from acting as a company director.
Insolvency Director Disqualification statistics
Data released by the Insolvency Service in April 2022 shows that during 2021/22:
- 802 directors were disqualified as a result of the Insolvency Service’s work
- The mean average length of director disqualification was 5 years and 10 months
- 52 companies were wound up in the public interest
- 130 individuals faced criminal charges brought by the Insolvency Service, and 119 were convicted
- There were 424 separate sentences imposed relating to charges brought by the Insolvency Service
- The most common grounds for director disqualification were ‘unfair treatment of the Crown’ and abuse of Covid-19 financial support schemes
As at 31 March 2022, there were more than 6,500 former directors with active disqualifications and over 2,000 individuals subject to bankruptcy/debt relief restrictions.
List of disqualified directors UK
When 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.
Director Disqualification time limits
The Insolvency Service has three years to raise proceedings against the director of a dissolved or insolvent company. The clock starts ticking on the date the company is made insolvent/dissolved. There is no time limit for live companies.
What to do if the Insolvency Service threatens Director Disqualification
If you receive a Section 16 letter from the Insolvency Service, it means that you are at risk of being disqualified as a director. We urge you to get legal advice from our solicitors straightaway. We can help you raise a defensive challenge to prevent further legal action being taken. Sometimes the Insolvency Service mistakes a director’s conduct as ‘unfit’. We can set the record straight.
If there is no prospect of avoiding director disqualification proceedings, we can advise you on the best approach. We can either negotiate a director disqualification undertaking on your behalf, or we can defend you in court. Our solicitors are leading experts in director disqualification proceedings. You can trust us to get a positive result.