Applications for Permission to Act as a Director

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Our Insolvency Team has experience of advising in relation to applications for permission to act as a director

Factors such as late customer payments, failed delivery of goods and cashflow problems can pose a serious threat to a business and, if left unchecked, may ultimately lead to its insolvency.

Early intervention is critical in turning the situation around and gives the greatest opportunity to minimise the long term effect on your business, its directors and stakeholders. In fact, the sooner you seek professional advice, the wider the range of options which are likely to be available to you and the business – see Insolvency and Business Recovery.

In some cases, however, insolvency cannot be avoided. An insolvency practitioner appointed to deal with the formal insolvency process will review, amongst other things, the conduct of the directors and the reasons for the failure and will report his findings to the Insolvency Service. Where it appears that the director has acted in an unfit manner, this may result in proceedings being brought against the director under the Company Directors Disqualification Act 1986 (“CDDA”) – see Directors’ Disqualification.

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If you are facing disqualification under the CDDA, our experienced Insolvency and Business Recovery team is able to advise in relation to applications, pursuant to Section 17 CDDA, whereby an individual seeks permission to act as a director notwithstanding the fact that they are subject to a Disqualification Order made by the Court (“DO”) or have given a Disqualification Undertaking (“DU”) to the Secretary of State (“SoS”).

The SoS is obliged to appear on such applications and draw to the attention of the Court any matters which appear to the SoS to be relevant. The SoS often remains neutral (that is to say, the SoS does not consent to the application) but will normally insist that specific requirements are a condition of any Order for permission to act which the Court may be inclined to make. In addition, in order to protect the public, the SoS will generally insist that appropriate safeguards are put in place to reduce the risk that the conduct previously complained of will be repeated.

The Court is encouraged to take a critical approach when considering an applicant’s evidence and should satisfy itself that it is an appropriate case for permission to act to be granted notwithstanding the fact that every aspect of the applicant’s evidence may not have been challenged by the SoS.

The key points to note are:

  • the onus lies firmly with the applicant seeking permission to satisfy the Court that permission should be granted;
  • the application invariably must relate to a specified company or companies (i.e. blanket permission to act as a director will generally be refused); and
  • in cases where permission is granted, it is frequently only granted subject to strict conditions and safeguards and will cease immediately if there is default in compliance with such conditions.

In considering whether to grant permission, the Court will consider a number of factors including:

  • the seriousness and type of conduct leading to the disqualification – individuals whose conduct was held to fall within the middle/highest bracket of seriousness (a period of more than 5 years) will find it more difficult to persuade the Court that it is appropriate to grant them permission to act;
  • the risk of the recurrence of the unfit conduct – the risk of recurrence is likely to be higher when the applicant’s role and responsibilities in relation to the company in respect of which permission to act is sought are very similar to those held by the applicant in the company to which the original disqualification proceedings relate; and
  • the trading prospects of the company/companies in respect of which the application is made – the applicant will need to demonstrate that the company is solvent and paying its debts as and when they fall due and that adequate and often extensive financial controls have been put in place, particularly where complaints over a lack of financial controls were identified in the original proceedings.

The period of disqualification imposed on a director starts at the end of the period of 21 days beginning with the date of the DO or the date of acceptance of the DU by the SoS. Until the DO is made or the DU is accepted, a director cannot make an application for permission to act.

Given that it is necessary to ensure that the application is heard within the 21 days immediately after the DO is made or the DU is accepted, this often results in a very tight timeframe within which to make the application for permission to act. If it is considered that permission to act will be necessary, it is important to take advice as early as possible and in any event ideally before the making of a DO or acceptance of a DU.

As a result, it is often the case that an application for interim permission to act will be made in the first instance. The factors considered by the Court in determining whether to grant interim permission to act and the conditions pursuant to which interim permission to act may be granted are broadly similar to those which are relevant to the substantive application.

For more information contact John Bradshaw or Sarah Mower in our Insolvency and Business Recovery team.