If a company director is found guilty of misconduct, they may face disqualification from acting as a director for some time, ranging from 2 to 15 years. We look at why disqualification might occur, the implications and what to do if you are facing an investigation.
What are a Director’s Responsibilities?
There is a wide range of director requirements set out in the Companies Act 2006, and failure to adhere to the rules can be damaging for both a business and its directors. Directors’ duties include:
- Acting in the best interests of the company
- Exercising reasonable care, skill and diligence
- Acting within the powers allowed under the company’s constitution
- Promoting the success of the company
- Exercising independent judgement
- Avoiding a conflict of interest, ie. ensuring that a director’s interests are not at odds with the company’s interests
- Declaring any interest in proposed transactions
- Not accepting benefits from a third party that are offered because someone is a director or on the basis of actions or decisions they could take as a director
When Might a Director be Disqualified?
Disqualification of a company director is usually based on insolvency or misconduct, although it can also be because a director is incompetent.
Situations where a director could be disqualified include:
- Wrongful trading, or carrying on business when a company is insolvent
- Bankruptcy of a director
- Breach of fiduciary duties, including persistent failure to file company returns and accounts with Companies House
- Failing to act in the company’s best interests
- Breaching financial regulations
- Failure to pay tax
- Fraud, including with respect of bounce-back loans
- Conviction for certain criminal offences, including money laundering
The Insolvency Service have a range of powers allowing them to investigate former directors of dissolved companies where bounce-back loans were taken out. Court proceedings have been brought successfully in a range of director disqualification cases both against those who were not entitled to loans and those who misused loans. In some cases, directors have been given prison sentences.
The insolvency practitioner can request disqualification and is also able to start a claim to recover funds personally from a director.
Facing Potential Disqualification as a Director
If your company is entering into administration, receivership or liquidation, then the official handling the business is likely to investigate the directors’ conduct to assess whether this has contributed to the difficulties.
Where unfit conduct is alleged, it will be reported to the Insolvency Service and an application may be made to the court for a disqualification order.
Speaking to an experienced corporate solicitor is highly recommended. You may be able to avoid court by agreeing to a voluntary disqualification. This is not only a faster process than court, but it can result in a shorter ban. However, you are strongly advised to speak to a solicitor before making any admissions.
Company director disqualification, whether as a result of a court order or voluntarily, can have a long-term effect on your career and your name will be entered on the Companies’ House director disqualification register.
You may also face personal liability for losses arising from the alleged misconduct.
What is a Disqualified Director Prevented From Doing?
A disqualified director can work as an employee for the company but is prohibited from the following:
- Acting as a company director, including in an overseas company that operates in the UK
- Forming, managing or promoting a company
- Carrying out the duties of a director, such as decision-making, taking on finance and employing workers
- Instructing someone else to run the company on your behalf
You can work as a sole trader or be in a partnership, but not a limited liability partnership.
If you are in a regulated profession, such as an accountant or solicitor, the relevant professional body is likely to have rules about whether you can work during the period of your disqualification.
How to Tackle an Insolvency Service Investigation
If you are facing an Insolvency Service investigation, you are advised to speak to a solicitor with expertise in this complex area of law. Working with the investigator to provide information and help them understand the background to decisions can ensure that they can appreciate why certain actions were taken.
Our corporate team can represent you in an investigation and court proceedings, ensuring you have the strongest possible defence and that any mitigating circumstances are fully explained.
Contact Our Specialist Team
If you have been notified of a potential investigation into your business or you believe that steps may be taken to disqualify you from acting as a company director, talk to our expert director disqualification solicitors today. Email us at info@witansolicitors.co.uk or fill in our contact form and we will discuss how we can help.
