Precautionary measures for Directors so as to avoid disqualification or personal liability.

Take professional advice from My Insolvency and their Professional Advisors, initial consultations are free.

- Don't carry on taking goods/services on credit if you know the company cannot pay for them.

- Pay PAYE/NIC and VAT on time.

- Don't take deposits if you think the company will be unable to supply the goods/services for which the deposit is paid.

- Keep proper accounting records

- Ensure that appropriate management information is provided at regular intervals and that action is taken where necessary

- Ensure your annual returns and company's accounts are filed on time.

- Don't allow your Directors' loan account to be overdrawn.

- Make sure that directors' remuneration packages are not excessive

- Don't allow the company to carry on trading when you know there is little chance of avoiding formal insolvency, i.e. writs and judgments are mounting.

- Keep notes of actions taken to try and minimise losses to creditors, e.g. Injection of cash from directors/shareholders, reduction in salaries, etc.

Please note: This guide is intended to provide basic information only.

What Are the Grounds for Disqualification as a Company Director?

• Illegal trading (trading while insolvent)

• Not following the rules of the Companies Act

• Failure to comply with competition law

Directors can also be disqualified if they are deemed to have shown unfit conduct, but what exactly constitutes this?

Company directors are considered to have displayed unfit conduct if:

• Trading continues during the process of insolvency

• Failing to maintain and supply accurate accounting records

• Failure to pay tax

• Using company assets for personal benefit

• Failure to send the required documentation to Companies House

• Misleading creditors as to the financial position of your company

• Committing fraud

• Ignoring issued demands from Official Receivers or Insolvency Practitioners

• Being an undischarged bankrupt

Does A Disqualification Order Stop You From Working Again?

No. A disqualification order does not prevent you from taking a job at the company (providing the former director does not hold themselves out as a director or seek to exercise control behind the scenes (as a shadow director)), or from working as a sole trader. However, undertaking executive/management roles like hiring staff and/or controlling company bank accounts may be seen as breaching the disqualification order, and this is where you can get yourself into some serious legal trouble.

The Disasters Of Disqualification

Company directors (including past directors, de facto and shadow directors) face all kinds of difficulties after being issued with a disqualification. These include and are not restricted to:

• Schools preventing you from joining the board of governors

• Charity’s preventing you from becoming a trustee

• Pensions Regulator permission required for becoming a trustee of an occupational pension scheme

• Health/Social care banning orders

• Professional organisation banning orders (may not be a solicitor, barrister or accountant)

Personal liability for company debts is also a possibility if a company director contravenes their banning order. This liability would be for those debts incurred when the infringements took place.

If you face a banning order, your associates may also become involved if you request that they act on your behalf – rendering them equally liable for company debts. This may lead to them being disqualified themselves.

Length of Disqualification

The period of disqualification of current, past, defacto and shadow directors is fixed at the discretion of the court by reference to the degree of responsibility and blame.

The guidelines of the Court of Appeal divide the cases into three categories:

1. Two to five years disqualification where the case is not relatively serious.

2. A period of 10 to 15 years for the most serious cases (in particular someone facing disqualification for the second time); and

3. Six to Ten years for cases in the middle bracket between serious and not very serious (as described above).

Permission to act in certain circumstances

It is possible for a director against whom a disqualification order has been made to apply to court for permission to act as a director in particular circumstances notwithstanding disqualification. Contact one of our corporate insolvency disqualification specialists to discuss your individual circumstances on 0800 009 6106.

Freelancer Essentials

On What Grounds Can I Be Disqualified As a Company Director?

As a company director, you are responsible for everything that happens to your business. Sometimes financial difficulties can arise, and if a Court deems you to have acted unlawfully during a period of hardship, you can be issued with a disqualification order that prevents you from leading any company for up to fifteen years.

Some company directors who have behaved unlawfully by not honoring their creditors will choose to voluntarily sign a disqualification undertaking, which means that proceedings won’t go through court. However, the laws remain the same – and a ban remains in place that prevents these individuals from becoming involved with a company setup at any stage. If an undertaking or order is breached, a prison sentence of up to two years can be issued, along with a further elongated period of disqualification.

Investigation Into Insolvency

The role of the insolvency officeholder (in a compulsory liquidation it will be the Official Receiver who submits a report, whilst in any voluntary liquidation, any administrator, or any administrative receiver the office holder will be Licensed Insolvency Practitioner) is to report to the Secretary of State if they consider that grounds exist for applying for a disqualification order.

During formal insolvency proceedings, the report is sent to the Secretary of State describing the conduct of every director (includes past, current, de facto and shadow directors) in place over the past three years period prior to entering into formal insolvency.. The Insolvency Service then decide whether it is worth conducting further investigations into the actions of individual directors.

Any company director in line for investigation will be contacted by the Insolvency Service, and be issued with a request to provide a valid reason explaining their actions. If the Insolvency Service deems a company director’s explanation to be unworthy, they may decide to pursue a disqualification order. Any company director who is considered by the Insolvency Service to have acted unlawfully will be given an opportunity to explain themselves again in a court of law via a written "statement of truth". Of course, court proceedings can be avoided by undertaking a disqualification order voluntarily.

Company directors issued with banning orders are allowed to apply through the courts to become a director again if they desire. However, UK law considers individuals with disqualification orders to be a danger to the general public, and courts are often extremely reluctant to overturn banning orders unless fresh evidence is provided that suggests a mistake was made on their behalf.