What is a Directors’ Conduct Report?
When a company is voluntarily wound up (aka a creditors’ voluntary liquidation), it is the liquidator’s responsibility to closely examine the running of the company and prepare a detailed written report on the matter.
One aspect of this is the question of director’s conduct, and in particular, whether it is felt that the company situation was the result of any mismanagement.
3 Types of Director’s Conduct Report Prepared by the Liquidator
A liquidator will submit one of three reports to the Insolvency Service. These are:
(a) D2 final report meaning the liquidator considers his investigations are concluded, and there is nothing to report
(b) D2 interim report, which is pertinent when the IP requires more time to continue his investigations.
(c) The d1 report which is a report highlighting areas the IP feels may be considered mismanagement regarding how the directors ran the company.
The director’s report will then be sent to the insolvency service for review, a process which considers the director’s business history, including any previous company failures he may have had. The Insolvency Service’s main concern is whether one or more of the company directors should be held at fault, and thereby disqualified for a specified period from becoming a director of a company again.
In the case of the D1 report, it should be stated that the liquidator will be careful to separate directors from each other. If one director has been clearly at fault, then they will be marked out for disqualification rather than all the company directors by default.
How Long Does the Insolvency Service Have to Respond?
The insolvency service has a two-year time-frame to proceed if they feel there is a reasonable case for director disqualification. If they feel there is a good reason to do so never also obtain a court order to extend this time beyond that period. A good deal of that timeframe will be spent collecting evidence, and contacting the relevant company directors to ensure their information is verifiable.
Once they have made the decision, they may apply to the High Court for a disqualification order.
Should I be worried about a director’s conduct report in liquidation?
If the report finds that you’ve followed the law and acted responsibly, you generally have nothing to worry about. However, if it suggests that you’ve acted improperly, such as taking money out of the company unfairly or not keeping proper financial records, then you could face serious consequences.
These consequences can include being banned from acting as a director for a number of years, or even legal action. It could also impact your reputation, making it harder to do business in the future.