Disqualification of company directors

Company directors are at risk of disqualification if they fail to meet their legal responsibilities - so it's important they understand the potential reasons for disqualification and the consequences.

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What are the reasons for disqualification?

Company directors can be disqualified from acting as a director, under the Company Directors Disqualification Act 1986 if they are found guilty of 'unfit conduct' - for example, if they:

  • committed fraud
  • continued to trade when the company was insolvent - or they failed to assist the appointed Insolvency Practitioner
  • allowed a company to continue trading which cannot pay its debts
  • failed to maintain proper company accounting records
  • failed to submit company accounts and returns to Companies House
  • did not pay any tax owed by the company
  • used company money or assets for personal benefit

Under UK law you cannot be a company director while your bankruptcy remains undischarged in the UK. You are legally prohibited from managing, forming or promoting a limited company unless you have the explicit permission of the court.

It is important that you understand and abide by these limitations. If you attempt to become a company director while your bankruptcy is undischarged, you will be breaking the law. Once your bankruptcy has been discharged, you are free to become a director again.

What is the procedure for disqualification?

Anyone can report a company director for alleged unfit conduct. Other than complaints about filing of accounts, which are made to Companies House, most complaints are made to the Insolvency Service (apart from serious and complex fraud which should be reported to the Serious Fraud Office).

Upon receiving a complaint, the Insolvency Service may decide to carry out a confidential investigation of the company and its directors - or pass on the complaint to another public body.

Once it has concluded an investigation, it may decide to close a company and/or disqualify its directors, in addition to potentially carrying out a criminal investigation.

If the Insolvency Service believes that a director has not followed their legal responsibilities, they will inform the director of the details of the allegation and notify them of the disqualification process, as well as inviting them to respond. The director can either:

  • Wait for court proceedings to be brought and defend the claim in court (if they believe the allegation to be false)
  • Provide the Insolvency Service with a 'disqualification undertaking' if they accept the allegations - this is a voluntary disqualification which avoids court

What are the consequences of disqualification?

Disqualified directors are barred from:

  • being a director of any company registered in the UK, or of an overseas company with connections to the UK
  • being involved in the formation, marketing or running of any company
  • sitting on the boards of charities, schools, police authorities, health boards and social care bodies - or acting as a registered social landlord
  • acting as pension trustees
  • acting as solicitors, barristers or accountants

Breaching the terms of disqualification can result in a fine or, in the most serious cases, imprisonment for up to two years.

How long can a director be disqualified for?

Company directors are disqualified for between 2 - 15 years. During this time, their details are kept on the Companies House database (and automatically removed once disqualification comes to an end).

Can a disqualified director act as a director?

If a disqualified director has a 'reasonable need' to act as a company director during the period of their disqualification, they can apply to the court. If they are granted an exception, this may come with various restrictions.

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