Becoming the director of a limited company brings with it certain fundamental responsibilities laid down in the law. When these are not adhered to, directors risk what is called a ‘directors disqualification order’, which means they are banned for ‘unfit conduct’ from continuing in their role.

This post will give you some idea of what the order means and when it could be imposed.


Common Reasons for Director Disqualification

In the UK, a company director can be disqualified for several reasons. These include insolvency, misconduct, bankruptcy and fraud.

Company Insolvency

When a company faces insolvency, it often leads to a thorough investigation of the directors’ conduct and decision-making processes. This scrutiny is primarily aimed at determining if there has been any dereliction of duty or mismanagement that contributed to the company’s financial downfall.

The assessment typically focuses on the director’s adherence to their fiduciary duties and statutory obligations under the Companies Act 2006. Key areas of examination include the director’s role in financial management, their decision-making leading up to the insolvency, and any actions that may have prioritised personal interests or those of specific creditors over the company’s overall wellbeing.

If the investigation reveals that the director failed to act in the best interests of the company or its creditors during the period leading up to the insolvency, this could be grounds for disqualification. For instance, continuing to trade while knowingly insolvent, not keeping proper financial records, or failing to pay taxes due could all be considered misconduct in this context.

The consequences of such findings are serious. If a director is found to have contributed to the insolvency through negligent or wrongful actions, they can be disqualified for a period ranging from 2 to 15 years.

Director Misconduct

Director misconduct is a common ground for disqualification. This encompasses a broad spectrum of actions that breach the duties and responsibilities expected of a company director. The Companies Act 2006 sets out these duties, which include acting within their powers, promoting the success of the company, exercising independent judgment, exercising reasonable care, skill, and diligence, avoiding conflicts of interest, not accepting benefits from third parties, and declaring an interest in a proposed transaction or arrangement.

When directors fail to uphold these standards, it can lead to serious consequences, both for the company and for the directors themselves. Misconduct may involve a range of activities, such as:

  1. Financial Mismanagement: This includes irresponsible handling of the company’s finances, such as misappropriation of funds, improper use of company assets, or making decisions that are financially detrimental to the company without due consideration.
  2. Failure to Keep Proper Records: Directors are required to ensure that the company maintains accurate and up-to-date financial records. Neglecting this duty can obscure the company’s financial position, impede effective decision-making, and contravene statutory requirements.
  3. Conflict of Interest: Engaging in activities or decisions where the director’s personal interests conflict with those of the company. This undermines the director’s obligation to act in the best interests of the company.
  4. Breach of Legal Obligations: This includes failing to comply with laws and regulations governing corporate conduct, such as employment laws, health and safety regulations, and environmental laws.

Director misconduct can be identified through internal audits, whistleblower reports, or during investigations by regulatory bodies. If found guilty of misconduct, a director can face disqualification for a period of between 2 and 15 years.

>>Read our full article on the directors conduct report


Bankruptcy of a director is a straightforward yet significant ground for disqualification in the UK. Under the Company Directors Disqualification Act 1986, a director who is declared bankrupt is automatically disqualified from holding the position of director in any company. This prohibition remains in effect throughout the period of bankruptcy.

The rationale behind this automatic disqualification is rooted in the principle of financial responsibility and trust. A director, by virtue of their position, is entrusted with the financial stewardship of a company. Bankruptcy, which typically indicates an inability to manage personal or business financial affairs effectively, raises concerns about the individual’s capacity to fulfil this stewardship responsibly.


Fraud is a severe and unequivocal ground for the disqualification of a company director in the UK. When a director is found guilty of fraud, it directly calls into question their integrity, trustworthiness, and suitability to manage corporate affairs. Given the serious nature of fraud, which often involves deception for personal gain or to the detriment of the company, employees, shareholders, or creditors, the consequences of such actions are substantial.

Company Directors Disqualification Act 1986

The chief law covering these rules is the Company Directors Disqualification Act 1986 (CDDA). It acts as a safeguard for businesses and the wider economy by promoting responsible and ethical company management.


  • Disqualifies individuals from acting as directors: This can be for a specified period, usually ranging from two to 15 years.
  • Prevents disqualified individuals from:
    • Forming or promoting new companies
    • Managing an existing company
    • Acting as a receiver or liquidator
    • Being involved in the management of a trust company

What constitutes unfit behaviour?

Unfit behaviour for a company director in the UK encompasses a range of actions and practices that demonstrate a failure to meet the legal, ethical, or managerial standards expected of someone in this role. This concept is particularly relevant under the Company Directors Disqualification Act 1986. The following are key examples of what constitutes unfit behaviour:

  1. Financial Mismanagement: This includes poor handling of the company’s finances, such as failing to maintain adequate financial records, using company funds for personal use, or making decisions that endanger the company’s financial health without proper justification.
  2. Failure to Comply with Statutory Duties: Directors have specific legal duties under the Companies Act 2006. Neglecting these duties, such as not filing annual returns, failing to keep proper accounting records, or not paying taxes and other dues, can be seen as unfit behaviour.
  3. Breach of Fiduciary Duty: This refers to actions where a director fails to act in the best interests of the company, such as engaging in transactions that create a conflict of interest, not acting with the care and diligence expected, or making decisions that benefit them at the company’s expense.
  4. Fraudulent Trading: Engaging in business practices intended to defraud creditors or for any other fraudulent purpose is a serious offence and is a clear example of unfit conduct.
  5. Wrongful Trading: Continuing to trade when the director knows, or should know, that there is no reasonable prospect of avoiding insolvent liquidation or administration, thus potentially exacerbating the position of creditors.
  6. Non-compliance with Employment, Health and Safety Laws: Ignoring or violating laws related to employment, health and safety can also be considered unfit behaviour, as it demonstrates a disregard for legal obligations and the welfare of employees.
  7. Environmental Misconduct: Neglecting or violating environmental laws and regulations can also be grounds for being deemed unfit, reflecting a disregard for societal responsibilities.

It’s important to note that this is not an exhaustive list, and the determination of what constitutes unfit behaviour can be influenced by the specifics of each case, including the director’s intent, the impact of their actions, and any mitigating factors.

What are the effects of director disqualification?

Here are some potential impacts of being disqualified as a director:

  • Loss of directorship positions: Prohibition from acting as a director in any UK company or overseas companies operating in the UK for the duration of the disqualification period, potentially leading to loss of current position and income.
  • Reputational damage: Public recording of director disqualification, impacting reputation and hindering future employment prospects in management or leadership roles.
  • Personal liability for debts: In certain situations, disqualified directors may become personally liable for company debts incurred during the disqualification period, especially if they continue to manage the company in breach of the order.
  • Difficulty obtaining credit: Hesitancy from banks and lenders to provide credit to individuals with a history of director disqualification due to concerns about their financial acumen and business practices.
  • Criminal penalties: Breaching a disqualification order constitutes a criminal offence, potentially resulting in imprisonment for up to two years.
  • Prosecution of aiding and abetting: Individuals knowingly assisting a disqualified director in company management can also face prosecution and penalties.
  • Restrictions on company involvement: Disqualified directors are unable to form or promote new companies, act as receivers or liquidators, or be involved in managing trust companies.