Director’s Disqualification

Under the CDDA, a Court may, in appropriate circumstances, make a Disqualification Order against a person that they shall not, without permission of the Court, be a director of a company or in any way (directly or indirectly) be concerned or take part in the promotion, formation or management of a company for a specified period. The period of disqualification can range from 2 to 15 years dependent upon the seriousness of the misconduct.

The main purpose of disqualifying an individual from acting as a director is to protect the public – i.e. to prevent that individual from being a director of another company and repeating their misconduct (which often results in losses to creditors).

Our experienced Insolvency & Business Recovery Team is able to provide advice and assistance in relation to all aspects of director’s disqualification.  We also act for individuals who are subject to disqualification and who wish to seek permission from the Court to act as a director of a named company pursuant to Section 17 CDDA. (For more information click here.)

Any person who has acted as a director (whether formally appointed or not) of a company which has been placed into insolvency (administration or liquidation) will potentially be at risk of an application being made to Court by the Secretary of State (“SoS”) under CDDA for their disqualification from acting as a director.  In determining questions of unfitness, the Court shall have regard to various matters including:

• Any misfeasance or breach of any fiduciary duty by the director in relation to a company;
• Any material breach of any legislative or other obligation which applies to the director as a result of being a director of a company; and
• The frequency of any conduct of the director falling within the above two matters.

Save for in the most contentious circumstances, director’s disqualification applications are often dealt with by negotiation of a Disqualification Undertaking (“DU”) with the Insolvency Service (on behalf of the SoS) which is then given by the director.  In appropriate circumstances, this avoids the need for Court proceedings and the inevitable costs and delays that would entail.  It can also often result in a lesser period of disqualification than would be sought by the Secretary of State if a Court application were necessary.

It is important for directors to be aware, however, that following disqualification a Compensation Order can be sought by the Secretary of State to require individuals who formerly acted as directors to contribute to an insolvent company’s assets where their misconduct led to disqualification from their acting as a director.

In an extension to the existing powers of the Insolvency Service to investigate the conduct of the directors of live companies (in the public interest) and companies which enter a form of insolvency, the Government introduced amendments to the CDDA in December 2021 under the Rating (Coronavirus) and Directors Disqualification (Dissolved Company) Act 2021 to include dissolved companies without the need for them first to be restored to the register and placed into liquidation. The primary aim of these new measures is to seek to discourage directors from abuse of the dissolution process in an effort to avoid scrutiny of their conduct and potential disqualification from acting as a director. It should be noted these new powers have retrospective effect.

If you are faced with the threat of disqualification proceedings, it is important to seek legal advice as to your options without delay, thereby ensuring early engagement with the process and, accordingly, that the widest range of options is available to you. Our Insolvency Team can:

• advise and assist you in responding to information requests made by the Insolvency Service;
• attend any meetings or interviews with you and provide advice in that regard;
• request copies of any books and records of the company if you require access to them to assist in responding to the Insolvency Service;
• request a copy of the Insolvency Service’s draft evidence;
• advise you as to the merits or otherwise of the Secretary of State’s claim against you and your options going forward;
• formulate a substantive response on your behalf, including setting out details of any mitigating factors which you wish the Insolvency Service to consider;
• advise and act for you in defending any application for disqualification brought by the SoS;
• negotiate with the Insolvency Service in relation to the period of disqualification sought and advise upon the terms of any DU offered;
• advise and assist in relation to an application for permission to act as a director notwithstanding disqualification. (For more information click here.)

In addition to advising clients on the disqualification process itself, we are also able to advise and assist directors and former directors who are subsequently pursued by an insolvency practitioner in respect of claims arising from a company’s insolvency.

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