Section 16 Letter

Written 12th December 2016 by Ruth Peters

I have received a section 16 letter from the Insolvency Service – what now? The Insolvency Service want to disqualify me pursuant to section 6 of the Company Directors Disqualification Act 1986.

Have you just been told that you are about to be disqualified as a company director? If the Insolvency Service intend to recommend to the Secretary of State for Business, Innovation and Industrial Strategy (formerly DTI and then Business, Innovation and Skills) for your disqualification to act as a company director they are required to write to you and tell you about this. This requirement arises in section 16 (1) of the Company Directors Disqualification Act.

The letter will often be entitled Notice Pursuant to Section 16 of the Company Directors Disqualification Act 1986 (“CDDA”) of intention to commence proceedings to disqualify you”.

The letter will normally have been written by an investigator at the Insolvency Service with whom you have likely met in a formal meeting. People often express surprise that that friendly investigator who met with them several months ago now believes this you should be disqualified.  The answer is of course that at the first sign that an investigation is underway you should obtain legal advice from solicitors who specialise in directors disqualification proceedings.

How will I know that a disqualification investigation has started?

The liquidator or administrator of an insolvent company is required to file a report with the Insolvency Service within 6 months of their appointment about the conduct of directors.   This requirement arises in section 7(3) of the Company Directors Disqualification Act 1986.

If the Insolvency Practitioner concludes that the directors conduct was “unfit” he is required to tell the Insolvency Service what his/her concerns are.

This report is called a “D1” and is commonly referred to as a “D-Report”. It is a private communication and cannot be obtained in any public forum.  However, you will be able to infer its existence by the very fact that the Insolvency Service have written to you.  It is recommended that you obtain legal advice from a specialist directors disqualification solicitor about the ways in which to secure a copy of the D-Report.

What are my options after receiving the section 16 CDDA letter?

The section 16 letter will normally tell you several things. It will tell you:

  • Who else the Secretary of State intends to commence proceedings against. These may be your fellow directors or other people acting as shadow or de facto directors.
  • It will describe in some detail the allegations of unfit conduct relating to your time as director of the insolvent company.
  • It may invite further representations from you to respond to any of the allegations.
  • It may invite you to seek a copy of the draft evidence produced against you.
  • It will tell you of the period of time that the Secretary of State will suggest to the Court as being appropriate for a disqualification order.
  • It will invite you enter into a disqualification undertaking, which has the same effect as a disqualification order, without the requirement for court proceedings. A short discount is commonly offered and the best analogy to use would be the reduction in sentence one would obtain by an “early plea” in a criminal case.

At this stage the investigation has nearly concluded and litigation is waiting around the corner.

Windows of opportunity to change the mind of the Insolvency Service and Secretary of State are closing fast but they still exist.

As the best cure for any illness is prevention, so the best outcome at this stage of events is to halt the investigation before court proceedings are issued. This should be the entire focus of your efforts at this stage for which specialist advice is essential.

Need assistance from Specialist Directors Disqualification Lawyers London & Manchester?

Contact Stephen Chinnery on 0161 8341515 or by email.

If you would like to contact Olliers Solicitors please complete the form below

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