Understanding director disqualification and misconduct
If it looks like your business could be approaching insolvency there are certain duties and responsibilities placed on you as a director which you are required to adhere to. Failure to meet these legal director responsibilities could result in claims and/or a Disqualification Order being issued against you under the Company Directors Disqualification Act 1986.
An Insolvency Service review of directors’ conduct is part and parcel of a company being placed into administration or liquidation and will be conducted by the office holder, who is either the Official Receiver or an appointed insolvency practitioner. Any evidence of misconduct found must be reported to the Insolvency Service. There is a risk that the review could turn into a criminal investigation if there are signs of serious wrongdoing, such as fraud. An Insolvency Service investigation will include fact-finding, exploring the company records and conducting interviews with company directors, shadow directors, employees and external stakeholders.
What constitutes unfit conduct?
Director wrong doing can take many forms although the most notable examples include:
- Fraudulent or wrongful trading.
- Preference payments or transactions at an undervalue.
- Unlawful dividends.
- Serious breach of directors’ duties.
- Trading to the detriment of the The Crown.
Director & Head of Investigations
- 02031 546288
- 07747 753670
- mikejenner@mw-w.com
- 26 Bedford Square, London, WC1B 3HP
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What happens if you are disqualified as a director?
A Disqualification Order prevents an individual from acting as director or business manager without the prior agreement of the court for the period of the disqualification order which could be up to 15 years … You must also not be directly or indirectly involved with the setting up, management or promotion of a company of LLP during the period of your disqualification order. This can turn the insolvency company landscape into a complete minefield for you. Without clear and accurate direction you could become disqualified and personally liable for the company’s debts.
As an alternative to a Disqualification Order you may choose to voluntarily sign a disqualification undertaking which means that proceedings don’t go through the Court. However, the restrictions imposed on you will be the same as those detailed above and if an undertaking or order is breached you may face a prison sentence of up to two years plus a further period of disqualification.
Consequences of director disqualifications
A Disqualification Order may also affect other areas of your life such as:
- Schools may prevent you from becoming a governor.
- You won’t be able to continue to act or become a trustee for a charity without leave from the Court of the Charity Commission.
- Heatlh and social care organisations may bar you.
- Professional bodies may need to be contacted and may ban you from being a member.
- Banks may decline to provide services or loans.
- You cannot stand as a Member of Parliament.
Am I at risk of disqualification?
As part of administration or liquidation proceedings an initial investigations is conduceted by the appointed insolvency practitioner or Official Receiver and a summary sent to the Insolvency Service detailing the conduct of all directors who were in office during the three years prior to the insolvency appointment. The Insolvency Service acts on behalf of the Secretary of State and they ultimately decide whether it is in the public interest to begin further investigations into the actions of individual directors. With the added pressure of creditors demanding payment this can be an extremely challenging time. We are able to provide you with pre insolvency advice and guidance to help minimise the risk that you might be disqualified from acting as a director of a company in the future.
How can we help you?
- Clear and responsive advice – to ensure you adopt a proper course of action to avoid being disqualified.
- Responsive service – we understand that business is an ongoing process and will always be able to answer your calls and questions in a fast and responsive mannter, giving you the information you need to make the right decision.
- Past experience – although insolvency can be a difficult process we have helped hundreds of directors keep within the law.
Act now and avoid disqualification
If you are concerned it is vital you act now and work with a licensed insolvency practitioner who understands how to navigate the numerous potential pitfalls. By contacting McTear Williams & Wood you can safeguard yourself from being deemed as unfit to act as a director. Contact us now 0800 331 7417.
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