There are a number of reasons why a company director may find themselves disqualified, but the primary one is insolvency. Under the Company Director Disqualification Act 1986, there is a statutory framework with is designed to deal with insolvency and financial misconduct.
Essentially, a company director can be disqualified from being the director of a company if it can be proved that they haven’t met their legal responsibilities as a director. The legal responsibilities of a director require them to follow the company rules that are set out in the articles of association, keep up to date company records and report any changes, file annual tax returns and company accounts, pay corporation tax, and notify other shareholders if they are due to benefit from a company transaction. As a result, if a director allows a company to carry on trading when it can no longer pay back its debts, doesn’t keep proper accounts, uses company money or assets inappropriately, or fails to pay tax or submit returns, they could then be considered to be unfit and could be disqualified.
The process of disqualification begins with a correspondence from the Insolvency Service or an insolvency practitioner notifying that they are either bringing forward insolvency proceedings or investigating a complaint. In the correspondence they will outline what they think the director has done to make themselves unfit, that they intend to commence the disqualification process and how the director can respond.
In responding a director has two options. They can either wait to be taken to court to be disqualified, where they will have an option to defend themselves, or they agree to a voluntary disqualification which ends with a court action being brought against them. Whichever route chosen, Jarmans Solicitors always recommend that an individual or business enlists prompt legal advice as soon as they receive any correspondence regarding disqualification.
How long can a company director be disqualified for and what are the consequences?
Depending on the severity of the infringement, a company director can be disqualified from being a director of a UK company or involved in forming, making or running a company for up to 15 years.
- Lower categories defined as negligent or reckless conduct, or failure of judgement can lead to a disqualification of 2 – 5 years.
- Medium categories which include a serious endangerment of public interest hold a punishment of 6 – 10 years disqualification.
- High categories which include fraud, embezzlement, and serious criminal behaviour which was knowingly carried out and for personal gain command a disqualification of up to 15 years.
Any breaches of this can result in a fine and up to 2 years in prison.
Additionally, details of disqualified directors are published on Companies House’s website, and those who are disqualified can no longer with on charity, school, or police authority boards, be registered as social landlords, sit on a health or social care board, or be a solicitor, barrister, or accountant.
If you are concerned about the impact of a potential disqualification or would like to discuss options about building a case to defend against disqualification, our team of expert solicitors are here to advise you. Get in touch to book an appointment on email@example.com or call 01795 472291