Director Disqualification Solicitors
If you fail to comply with your legal obligations as a company director, the Secretary of State (the Insolvency Service) can bring director disqualification proceedings against you under the Company Directors Disqualification Act 1986.
If unsuccessful, you could be disqualified for up to a period of 15 years. Further, if you breach the terms of your disqualification, you could be fined or sent to prison for up to two years.
Summit Law specialises in defending director disqualification claims. Over the past 20 years, we have:
- Successfully persuaded the Secretary of State to withdraw proceedings against directors.
- Successfully persuaded the Insolvency Service not to recommend to the Secretary of State to issue proceedings.
- Successfully defended litigated disqualification proceedings.
- Successfully negotiated reduced periods of disqualification where directors are content to agree to a disqualification undertaking.
Even if you have only received an initial letter or phone call from the Insolvency Service, it is important that you contact our director disqualification lawyers straightaway. This is because any representations made on your behalf in the investigation stage can be used as evidence against you if proceedings are issued.
A director owes various duties to its company. These duties have now been enshrined in legislation and are documented within the Companies Act 2006.
In summary, these duties include:
- To act within your powers;
- To promote the success of the company;
- To exercise independent judgement;
- To exercise reasonable care, skill and diligence;
- To avoid conflicts of interest;
- Not to accept benefits from third parties;
- To declare an interest in a proposed transaction or arrangement.
Consequences of director disqualification
The consequences of director disqualification can be devastating, especially if you are a director of another company or companies which are your livelihood.
Once a director disqualification order has been made or a disqualification undertaking has been agreed, this means that you cannot be involved in the promotion, formation or management of a company (either directly or indirectly) for the period laid down by the court or agreed for the purposes of the undertaking.
The making of a disqualification order does not mean that you can simply resign from Companies House and continue managing the company in the background. This would constitute a breach of the order and attract serious civil and criminal penalties.
How can a company director be disqualified?
Where a company enters into any form of insolvency proceedings, the conduct of a director leading up to the insolvency will be reviewed and the investigation may result in a recommendation to the Secretary of State to issue director disqualification proceedings.
The most common method for a director to be disqualified is under section 6 of the Company Directors Disqualification Act 1986 for “unfit conduct”. The burden of proof rests upon the Secretary of State to establish that a director’s conduct is such that he ought to be disqualified. The standard of proof is the usual civil standard of balance of probabilities.
Alternatively, in appropriate circumstances, you may wish to consider offering a disqualification undertaking. This does not result in any finding by the court as to misconduct, but serves as an agreement between you and the Secretary of State that you are to be disqualified for an agreed period. The Secretary of State usually insists that a schedule of unfit conduct, that is, matters which are admitted for the purpose of the undertaking and any consequential purposes (such as seeking permission from the court to act as a director) is prepared and annexed to the undertaking.
An undertaking is attractive for many directors as it keeps costs low and avoids court proceedings. It is also possible to apply for permission to continue acting as a director (notwithstanding any undertaking in place). If you agree to a disqualification undertaking before disqualification proceedings are issued, you are unlikely to have to meet any costs incurred by the Secretary of State in investigating the claim and preparing the documentation in support of any proceedings.
A further advantage is that if you give a disqualification undertaking, there is a procedure (not dissimilar to the procedure under which permission to act as a director is sought) whereby you can apply at a later date to have the period of the undertaking reduced or for the undertaking to cease to have effect.
Acting as a director whilst disqualified
It is imperative that you understand and comply with the terms of a disqualification order or undertaking as your failure to do so can have devastating consequences (both civil and criminal). If you are unsure about what you may or may not be allowed to do as a result of a disqualification order or undertaking, please get in touch with our specialist director disqualification solicitors today for further advice.
If you continue to act as a director (or be concerned in the promotion, formation or management of a company) whilst you are disqualified, then you will be in breach of the disqualification order (or undertaking) which is a criminal offence. The criminal penalties include a fine and imprisonment for up to 2 years. The court is likely to take into account various factors such as any harm and loss caused by the offence and culpability.
When considering culpability, usually the most serious offences are those involving dishonesty or deception in relation to the actual role within the company, or where the breach involves deliberate concealment of the disqualified status of the director.
In relation to harm, the most serious cases are usually those where the breach results in significant risk of or actual serious financial loss, or where it results in a significant risk of or actual serious non-financial harm to the company or organisation, or others.
Aggravating factors include (but are not limited to) circumstances where the activity continued after warnings were received, continued over a sustained period of time, acting as a director in multiple companies or where a director was motivated by personal gain.
If you continue to act as a director (or be concerned in the promotion, formation or management of a company) whilst you are disqualified, then you will be in breach of the disqualification order (or undertaking) which also attracts civil penalties. You will become personally responsible for all the “relevant debts” of the company incurred during the time when you were involved in the management of that company.
In addition, a person, not being the disqualified director, who is involved in the management of the company and who acts upon instructions given by a person whom he knows to be disqualified, also assumes personal liability for the debts of the company incurred at that time.
The above is particularly relevant where a director appoints a family member or friend as a director in their place but continues to manage the company on a day-to-day basis. Not only does this put you (the disqualified director) at risk, but it also exposes the replacement director to liabilities.
If you are unsure whether the activities that you are carrying out may contravene a disqualification order or undertaking, you should contact us as soon as
possible for advice.
Application for leave
It is possible to apply to court for permission to continue acting as a director if you have been disqualified. This is commonly known as an application for leave. An application for leave is made under section 17 of the CDDA 1986. It can be made in respect of multiple companies.
Each application will turn on its own facts, but the court will have regard to the following principles in particular:
- The court will have to be satisfied that there is a real need for you to be a director of that company or be involved in its management. To satisfy the court, you will have to show firstly why, if at all, the businesses in relation to which you are seeking to be a director or to act in the management of the company cannot be carried on without the benefit of limited liability and secondly why, if the business cannot be so carried on, it is necessary for you (as opposed to some other person) to be a director. This will be looked at from the company’s point of view.
- The court may need to obtain sufficient safeguards from you (these would either be obtained in the form of undertakings from you or be required as conditions attaching to the grant of the order for leave) that the acts complained of against you will not arise in the future. You may, depending on the allegations made against you, expect the court to require you to provide the following safeguards:
- That cheques or financial agreements on behalf of the company should not be signed by you alone.
- Any amount owed by the company to you should not be repaid unless all creditors are paid first.
- All monies to HMRC will be paid monthly on time.
- There should be adequate safeguards for the filing of returns and accounts on time.
It should also be noted that even if your application for leave is successful, the usual order the court will make is that you shall pay the Secretary of State’s fees in relation to the application. These are usually in the region of £2,000-£3,000 plus VAT but can vary depending on whether the application is contested and the volume of documentary evidence.
Summit Law LLP has significant experience in successfully obtaining permission to act for numerous directors across a broad range of industries.
Company Directors Disqualification Act 1986 (CDDA 1986)
The CDDA 1986 is the primary piece of legislation which governs the disqualification regime. It was introduced to fill a gap in the law at the time to make directors accountable where their misconduct led to a company becoming insolvent.
The legislation was a welcome addition as it seeks to protect the public by imposing an obligation on the court to make a disqualification order if a director’s conduct makes him unfit to be concerned in the promotion, formation or management of a company.
We set out some of the main provisions of the Company Directors Disqualification Act 1986 here.
Why choose Summit Law LLP for director disqualification proceedings?
Our specialist director disqualification solicitors at Summit Law have a wealth of experience in:
- Advising clients whether their conduct may amount to unfitness;
- Preparing clients for preliminary interviews with the Insolvency Service, including carrying out mock interviews;
- Attending interviews with the Insolvency Service;
- Successfully persuading the Insolvency Service not to submit a recommendation to the Secretary of State that proceedings be issued;
- Successfully defending director disqualification proceedings;
- Successfully persuading the Secretary of State to withdraw proceedings.
- Successfully negotiating reduced periods of disqualification where directors are content to agree to a disqualification undertaking.
We have experience dealing with these matters on a day-to-day basis. We pride ourselves on offering realistic, proactive and affordable legal advice.
Our director disqualification defence fees
We offer an initial letter of advice in relation to the director disqualification regime generally for a competitive fixed fee of £800 plus VAT. Should you require anything beyond this, please get in touch with our specialist team today who can provide tailored fixed fee estimates.
Contact our director disqualification solicitors
At Summit Law, we take a pro-active approach and can provide advice at any and every stage in director disqualification proceedings. To read more about director disqualification, we have compiled this very helpful director disqualification guide.
For more information, please contact our specialist director disqualification solicitors today on firstname.lastname@example.org or email@example.com or 020 7467 3980.