Company Directors Disqualification Act 1986
This section is important as it places an obligation on the court to make a disqualification order in circumstances where the conduct of a director (in relation to one or more companies or overseas companies) makes him unfit to be concerned in the management of a company. It also sets out the minimum and maximum period of disqualification, being 2-15 years.
Section 13 sets out the criminal penalties for breaching a disqualification order or undertaking. If you act in contravention of a disqualification order or undertaking, this can have both serious civil and criminal consequences. This section provides that any party in breach can be subject to a fine or sentenced to up to 2 years in prison.
This section sets out the civil penalties for breaching a disqualification order or undertaking. It provides that a person becomes personally liable for all the “relevant debts” of a company where he has been involved in the management of that company in contravention of a disqualification order or undertaking. Importantly, this section also imposes civil liability for any person who is involved in the management of a company and acts upon the instructions of a person who is disqualified and who he knows to be disqualified. Liability will be joint and several with the offending party and the company in question.
Relevant debts are all debts of the company incurred at the time when the disqualified director was involved in the management of the company or all debts incurred at a time when the offending party was acting or was willing to act upon the instructions of the disqualified director.
Importantly, this section makes it clear that a disqualified director does not have to be directly involved in the management of the company to be liable. Being indirectly involved in the management of the company will give rise to personal liability under this section.
This section was introduced by section 110 of the Small Business Enterprise and Employment Act 2015. It provides that a director subject to a disqualification order or undertaking may also have a compensation order made against them on the application of the Secretary of State. A compensation order is an order made by the court which reflects the loss allegedly suffered by the company as a result of the director’s misconduct.
In order for an application for a compensation order to be successful, the conduct of the person subject to the order or undertaking must have caused a quantifiable loss to one or more creditors of an insolvent company. When making a compensation order, the court will take various factors into account, such as:
- the nature of the creditors and whether they have other forms of redress.
- the ability to readily identify the creditors affected and quantify the loss to each creditor (or class of creditors).
- whether through the insolvency process, for example liquidation, there has been or predicted to be a (material) repayment to those creditors.
In the event that disqualification proceedings are to be issued against you, you should receive what is known as a “section 16 letter”. This letter will set out the Secretary of State’s intention to issue proceedings against you for a disqualification order. This section provides that a person intending to make an application for a disqualification order must not give less than 10 days’ notice to the person against whom the order is sought. If you receive a section 16 letter, it is vital that you contact us as soon as possible for advice.
If you have been contacted by the Insolvency Service, please do get in touch with our director disqualification lawyers today. We have many years experience in defending director disqualification claims and are on hand to assist you today.