Specialist Directors Disqualification Lawyers
A liquidator or administrator will, as part of their investigation into the affairs of the company, report to the Insolvency Service if the conduct of a director is thought to be “unfit”.
The most common types of conduct for which a report will be made are the following:
- Did the director fail to keep adequate books and records?
- Did the director trade to the detriment of the Crown, and fail to pay taxes whilst continuing to pay other creditors?
- Was company property removed inappropriately?
- Is dishonesty suspected?
The Insolvency Service will take up the investigation and if satisfied that there is a case to answer and that it is in the public interest will issue the relevant application, in the Chancery Division of the High Court.
Directors face disqualification periods of between 2 to 15 years.
The law relating to directors disqualification is a specialist area requiring experienced solicitors being able to advise in relation to the following areas:
- The ability to pursue an application for leave to continue acting as a director
- The merits of entering into a disqualification undertaking
- Disqualification Compensation Orders
What are the stages of the Directors Disqualification process?
Directors Disqualification proceedings and its investigation stage follow a standard process. Each of these stages present an opportunity to stop the investigation process, force the Insolvency Service to halt court proceedings, settle the dispute, or win at Court:
- Will the Liquidator complain about my conduct to the Insolvency Service?
- I have received a section 16 letter from the Insolvency Service.
- Directors Disqualification Following Criminal Conviction
Section 17 of the Company Directors Disqualification Act 1986 allows for the court to grant leave to any person currently disqualified as a company director.
This means that a director subject to a ban can obtain the permission of the Court to act as a director.
The director will have to show that –
- The company of which he/she seeks the permission needs the appointment
- The public can be protected
In practice this means that the leave application will be subject to stringent conditions that must be adhered to.
It is often necessary to make emergency “interim application” to ensure that a director remains compliant at all times.
Disqualification proceedings will only be brought by the State against an individual if it is in the public interest to do so.
The prevailing view of the Courts is that the State must act fairly in its dealings with the individuals it intends for the Court to disqualify. Similarly, the Company Directors Disqualification Act 1986 itself provides for an individual to enter into a disqualification undertaking at any time prior to or before the end of proceedings.
The period of ban sought by the Insolvency Service and the basis on which the ban rests is subject to negotiation with the Insolvency Service.
Representations ought to be issued a the earliest possible stage with a request made for the draft evidence on which the Insolvency Service intends to rely.
As from October 2016 the Insolvency Service can pursue a claim against a disqualified director where their conduct has been such to cause losses to one or more creditors.
This is an entirely new set of powers for the State and represents significant overlapping powers with Insolvency Practitioners.
Public records suggest that by far the most common basis for disqualification are the accrual of Crown debts as other creditors have been favoured. In plain English this means that a director has failed to pay corporate taxes whilst keeping more demanding creditors onside. A finding or acceptance of “unfit conduct” arising out of unpaid taxes could therefore allow the Insolvency Service to pursue a claim for unpaid taxes against a director personally in these circumstances.
This is an emerging area of law which the Courts are yet to test.