A guide, not advice. This explains how things generally work. A licensed insolvency practitioner will tell you what applies to your company or to you.
Director Disqualification Proceedings
Director disqualification is a legal process by which the Secretary of State (via the Insolvency Service) or a court prevents a person from acting as a company director, or being involved in the management of a company, for a set period.
It is a serious matter - a disqualification order can affect your ability to earn a living, start a business, or act as a director for many years.
When Disqualification Proceedings Begin
Disqualification proceedings typically follow an investigation by the Insolvency Service after a company enters insolvency - usually a liquidation. The Service looks for evidence of unfit conduct by directors.
Examples of unfit conduct include:
- Wrongful or fraudulent trading
- Misuse or misappropriation of company funds or assets
- Failure to keep proper accounting records
- Failure to submit accounts or returns
- Breach of the directors' duties
- Trading while insolvent without regard for creditors
The Disqualification Process
- Investigation - The Insolvency Service investigates after a liquidation.
- Allegations - If it finds evidence of unfit conduct, the Service may write to the director setting out the allegations and inviting a response.
- Negotiation - Many cases are resolved by a disqualification undertaking - an agreement to a ban without a court order.
- Court proceedings - If no undertaking is agreed, the Service applies to court for a disqualification order.
The Duration of Disqualification
Disqualification orders can last from 2 to 15 years, depending on the seriousness of the conduct. The more serious the conduct, the longer the ban.
What a Disqualification Means
A disqualified person cannot:
- Be a director of any UK-registered company
- Take part in the formation or management of a company
- Act as a receiver or insolvency practitioner
Breaching a disqualification order is a criminal offence.
How to Protect Yourself
- Act honestly and responsibly as a director
- Keep accurate records and file returns on time
- Take advice as soon as the company is in difficulty
- Prioritise creditors' interests once insolvency is apparent
- Respond promptly and honestly to any Insolvency Service enquiry
Speak to a Licensed IP
If you are facing disqualification proceedings or an Insolvency Service investigation, take legal advice immediately. Our Manchester-based practitioners can advise on the process and your position.