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.
A court will only make a disqualification order against you if there is evidence of wrongdoing or misconduct. This post will give you some idea of what the order means and how it is likely to affect you.
- The Company Directors Disqualification Act 1986
- Director’s Disqualification Process
- What are the Restrictions on Disqualified Directors?
- Can a Disqualified Director Work as a Sole Trader?
- Expected Conduct during Insolvency
The Company Directors Disqualification Act 1986
The basis of the law banning directors is found in the Director’s Disqualification Act 1986, and was amended in the Enterprise Act 2002, and the Small Business, Enterprise and Employment Act 2015.
Director’s Disqualification Process
If there’s been a complaint, the Insolvency Service conducts an investigation into directorial conduct.
If they conclude you have not followed your legal duties, they will send you a letter, after which they will take you to court.
Offering the Insolvency Service a ‘disqualification undertaking’ at this point acts as voluntary disqualification and means you can avoid the court hearing.
How does Director’s Disqualification Work?
Once the order is in force, you are no longer allowed to act as a director.
This does not mean you can simply change your job description to sidestep the order.
You cannot, therefore, ask other people to manage a company under your instruction. If you do, those people involved in helping you contravene the order may also be prosecuted.
The presence of a disqualification does not limit the right of any prosecuting authority to bring criminal proceedings against you for any conduct which might amount to an offence. Neither does it prevent creditors or liquidators from bringing civil actions for any losses they might have sustained due to unfit conduct on your part.
What are the Restrictions on Disqualified Directors?
A disqualification order does not stop you working as an employee for a company. However, it does mean the following:
- Directors are disqualified from acting as a director of a company;
- Directors cannot take part, either directly or indirectly, in the formation, promotion and management of a company or limited liability partnership;
- Directors are forbidden from being a receiver of a company’s property
- Director’s are forbidden from acting as an insolvency practitioner.
Is there a Disqualified Directors Register?
All disqualification orders will be registered at Companies House, which keeps a register of all disqualification orders. This register can be accessed by the public.
There is also an online facility operated by the Insolvency Service. This provides the public with details of recent disqualifications, along with the improper conduct that resulted in the disqualification here.
Can a Disqualified Director Work as a Sole Trader?
Yes, this is allowed.
A disqualification order only applies to all companies formed in England, Scotland, Wales or Northern Ireland. It also applies to companies formed abroad if:
- The company is registered in England, Scotland, Wales or Northern Ireland;
- The company has a significant connection to England, Scotland, Wales or Northern Ireland (i.e. it has assets or carries on business in these areas).
A disqualification order does not prevent you from carrying on business as a sole trader or in partnership with others. However, you must not take part in the formation, promotion or management of a limited liability partnership unless you receive court permission to do so.
Breach of a Directors Disqualification Order
Contravention of a director’s disqualification order is a criminal act which is punishable by a fine or a custodial sentence of up to two years. The disqualification period may also be extended.
You can also become personally liable for any debts the company incurs during the contravention of the order.
If you contravene the order by asking somebody to act on your behalf, they can be prosecuted, disqualified from acting as a director of a limited liability partnership, and be made personally liable for the company’s debts.
If a disqualification order is made against a corporate director and that corporation contravenes the order, the officers or managers of the company can be held responsible in the same way as if the order applied to them personally.
Expected Conduct during Insolvency
As a director of a limited company which has become insolvent, you must:
- Carry out your duties honestly and responsibly;
- Ensure you and your company comply with the law and all relevant regulations;
- Exercise adequate skill and care with proper regard to the interests of your company’s creditors, customers, shareholders, employees and, in some instances, the public.
Is it possible to obtain permission to act as a director whilst disqualified?
It is possible, but you must satisfy the court that the public will be adequately protected if they grant you the permission you need. To be sure of this, the court may impose restrictions or conditions, or require additional safeguards.
You must also prove that you have a reasonable need to be able to act as a director.
Your application to the court should be made under section 17 of the Company Directors Disqualification Act 1986.
If you do wish to make such an application, you can obtain further information and guidance by contacting the Insolvency Service using the following email address: firstname.lastname@example.org.
Help is at hand…
The best way to avoid the problems associated with an impending corporate insolvency is to contact us at the first sign of trouble.
If your business is still viable, our business rescue solutions can help to turn your business around and put you back on the right track.
But whatever solution is right for you, we can ensure you act in the best interests of your creditors and avoid any wrongdoing or misconduct which might ultimately result in a director’s disqualification order.