What Is a Director Disqualification Order?
To put it simply, a Director Disqualification Order bans someone from running a company.
Only courts can make Director Disqualification Orders – and for that they require proof of unfit conduct.
There are many reasons why you might find yourself threatened with a director disqualification order. In most cases, the businesses involved have gone into liquidation. There also has to be proof that the directors have done something wrong when they were running the business.
Thousands of companies go into liquidation every year, but directors are only disqualified when they have done something wrong. You won’t be disqualified purely because your business has failed.
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The Effect of a Director Disqualification Order
If you been disqualified from acting as a director, you are not permitted to
- be a director of any company in the UK
- be a director of a foreign company which has UK connections
- set up or run a company, even if you’re not formally a director.
Disqualified directors might also find they are banned from other roles such as:
· Being a trustee of a pension
· Sitting on a charity board
· Working as a solicitor, lawyer or barrister
· Registering as a social landlord
· Acting as an administrator or company liquidator
Credit checking agencies will also make note of your disqualification as a director if you have signed personal guarantees for debts. This could affect your chances of getting a loan or mortgage in the future. Even if you haven’t given personal guarantees, being in charge of a company which has gone into liquidation could make it harder to open another business account in the future.
How long could my ban last?
If you are disqualified, the order will state the length of the ban. The period for disqualification is a minimum of 2 years – but could be for a much longer term, as many as 15 years.
Grounds for an Order
To make an order, court will need to be satisfied that there is clear evidence of “unfit conduct”.
Some of the most common reasons for issuing a director disqualification order are:
· Carrying on trading when you know the company can’t pay its debts
· Not keeping proper accounts
· Not submitting tax returns or underpaying tax
· Taking the company’s money for personal use
· Hiding company assets from creditors
· Ignoring instructions from the Official Receiver
· Not sending accounts to Companies House
Breaching an order – the very serious consequences
It’s a criminal offence to run a company or act as a director when disqualified. If you’re caught running a company when banned, you could face a fine, two years in prison, or both. You could also be personally liable for the debts the company ran up during your time as director.
If you want to resume work as a director, or set up another company, you need to apply through the court. The court may or may not allow you to operate as a director again. They might also put restrictions on the type of things you’re allowed to do.
It is possible to ask for permission to act as a director while you are banned. This can only be done through the High Court in England and Wales. You will have to prove to the court that you have a genuine need to act as a director. Just wanting to waive the order and set up a new company isn’t reason enough.
Making an order – the Process
In most cases, a director disqualification order is triggered by the Insolvency Service.
These are the people who come in after your company ceases trading and tries to wind things up. If they think that you’ve not been running the company properly, they might apply to disqualify you.
If the application for an order has been triggered by the liquidation of your company, it’s likely that the first you’ll hear of it is a letter or questionnaire from the Insolvency Service itself. The questionnaire asks detailed questions about the management of the business and who was taking financial decisions. If you receive one of these questionnaires arrives, get specialist legal advice immediately, and certainly before completing on returning this form.
Once the Insolvency Service has built a picture of what was happening in the company, they’ll send what is known as a Section 16 letter. This is the formal notification that they’ll seek disqualification. If this arrives you have a choice – either accept the disqualification, or go to court.
Don’t leave things to chance. Get legal advice on the best course of action in your circumstances.
Defences to Director Disqualification Orders
When the Section 16 letter arrives in the post, you don’t have to accept a voluntary director disqualification order. If you choose to go to court, you’ll have the opportunity to put your side of the story. If the court accepts your version of events, you might avoid a ban altogether. On the other hand, if you fight a ban through court and lose, you could have a large legal bill to pay.
Often, the Insolvency Service will find it difficult to prove who did what. This is especially the case where a company had more than one director. You might be able to fight your disqualification on the grounds that it was another director who was unfit, not you. This isn’t a defence which you can manage yourself though – you’ll need proper legal advice and representation.
In order to successfully defend a director disqualification, you’ll have to show evidence that the insolvency happened despite your best efforts. In other words, show that the insolvency was not a result of your unfit conduct.
The aim of a strong defence is either to avoid the disqualification completely, or get a shorter ban than the time the Insolvency Service originally wanted.
Will I Need a Specialist Solicitor?
If you are considering fighting your disqualification through the courts, you’ll need a specialist lawyer. There are only around 1,000 directors disqualified in the UK every year, so it’s not something that many lawyers will come across during their career. An experienced legal team can greatly increase your chances of successfully challenging your disqualification.
The good news is that modern technology makes it easy to communicate with your legal team, wherever in the UK they are located. It’s far better to choose a specialist firm located hundreds of miles away than a local firm who have little experience in this area of law. Distance is no barrier when you can call, email or use video conferencing to speak to your lawyer.
How Our Team Can Help You
Our team have extensive experience in dealing with all aspects of director disqualification wherever you and your business is based in England or Wales.
We can help with legal representation if you are planning to fight a ban.
We can also give more general advice about the process, or help you understand your rights and limitations. If you have already been banned and are facing prosecution for running a company, we can help with that too.
Let us take the stress of this complex legal problem off your hands.
What Is The Disqualified Directors Register?
The name and address of everyone who is disqualified as a director is listed in the Gazette in England and Wales (and on Scotland’s Register of Insolvencies). The Gazette is the “official journal of record” and consists largely of statutory notices
This is public information.
Your name, address and date of birth will appear on the Companies House database.
Anyone can search the database, free of charge and without registering.
The online record will show the start and end date of your disqualification period. It also shows which insolvent company was associated with the disqualification, as well as the grounds on which you were disqualified.
The Insolvency Service also carries details of people banned from being directors within the last three months. These records are also public. The Insolvency Service records are far more detailed and list all charges against you, including the amounts of money involved if relevant. As these records are public, you can’t ask for your personal details to be kept off the record. If you are lucky, you may find that the local or national press is interested in reporting the story.
What is a Director Disqualification Undertaking?
When you receive the Section 16 letter from the Insolvency Service, you may decide to accept the disqualification – agreed to what is known as a Director Disqualification Undertaking. An Undertaking of this sort has exactly same effect as a Order.
Most directors choose not to fight their disqualification, mainly because most applications for disqualification orders are only made when there is plenty of clear evidence of unfit conduct
Before 2001, directors didn’t have the option of voluntary disqualification. All cases were heard in court.
Before deciding whether to go to challenge an order or accept an undertaking, make sure that you get specialist legal advice.
An experienced solicitor can weigh the strength of the case against you, and give a guide as to the length of ban you can expect if found guilty.
What Is a Shadow Director?
As the name suggests, a shadow director is hidden in the shadows. In layman’s terms, a shadow director is the person calling the shots in a company, even if they aren’t formally registered as a director. If you are the subject of a current Director Disqualification Order, you’re not allowed to operate as a shadow director.
You can’t get round the order by setting up a company, list a friend or relative as a director, then run the business yourself. This could result in criminal prosecution.
However this doesn’t mean you are banned from working while you are banned as a director. You can seek employment with a company as long as you don’t have any of the powers or functions normally associated with directors.
You are also allowed to hold shares in your employer’s company if you wish.
In smaller companies these lines are often blurred, so act carefully. For example, a disqualified director probably shouldn’t be recruiting staff or taking executive decisions, whatever their job title.
You can set yourself up as a sole trader, or even in a joint business partnership. If you are unsure, seek specialist legal advice.
Tips to avoid becoming disqualified
There are some very easy ways to avoid getting yourself into trouble with the Insolvency Service.
It’s always a good idea to keep business and personal bank accounts completely separate. Using company money for personal purchases is one of the main reasons for disqualification. If funds are totally separate, that situation can’t arise. If you do become insolvent, you might involve the Insolvency Service. Although it might be tempting to prioritise paying personal contacts over HMRC, this could cause huge problems in the long run.
Perhaps the most difficult thing to do is realising when your company has reached the point of no return. If your business is insolvent, you must stop trading. It’s tempting to plough on, hoping things will improve. If things don’t improve, all you’ve done is make the situation worse.
This is another of those situations where ignorance is no defence. When you are legally listed as a director, that comes with rights and responsibilities. It’s your job to understand your responsibilities and make sure you’re complying with them. Delegating everything to an employee or an accountant isn’t enough. As director, the buck stops with you. It’s you who risk disqualification, not your accountant or staff members.