Written 15th December 2016 by Ruth Peters

If as a director of a company you fail to file returns or accounts to Companies House it may amount to a criminal offence for which you could be dealt with in the Magistrates Courts.

Disqualification Powers of the Criminal Courts

The Company Directors Disqualification Act 1986 (“CDDA”) section 5 allows the Magistrates Court to make a disqualification order for a period of up to 5 years.

In the more serious case of a committing fraud whilst a director of a company the Company Directors Disqualification Act 1986 (“CDDA”) section 4 allows the Court to make a disqualification order for a period of up to 15 years.

Leave Application

Whilst a prison sentence may be the immediate concern for the person convicted of a fraud related offence both situations allow for an application to Court for “leave” to continue acting as a director if certain conditions are met. The power of the Court to provide this permission is set out in section 17 of the Company Directors Disqualification Act 1986 (“CDDA”).

Generally speaking a person will be permitted “leave” where they can show that (a) there is a need for that person to act as a director of the company for the “leave” application is made, and (b) the public can be protected. Recent High Court authorities have confirmed that this is the test even in cases involving fraudulent behaviour.

Breach of the Disqualification Order

There is often an immediate practical problem for anybody facing sentencing in the criminal courts. The criminal courts will often make a disqualification order at the same time as handing down its sentence. It is usual for the disqualification order to take immediate effect.

This problem for the convicted person is that an order disqualifying them from acting as a company director often puts them in immediate breach of the disqualification order.

Aside from being a further criminal offence in its own right it can have an impact on the discretion of the Court when determining whether a person ought to be provided with “leave” to act as a director, should a future application be made.

Therefore, the correct approach when dealing with the criminal courts is to request an order that, any disqualification order, should it be made, ought to take effect not earlier than 21 days following the order being made. Such an approach will have the following effect –

It will protect the convicted person from being in immediate breach of the Order;
It will allow any urgent application to the Court for “leave” to continue acting as director to be heard without the requirement for the convicted person to resign as director