What action can be taken against a director?
Note – the following information refers to investigations into companies which have entered into formal insolvency proceedings including administration, administrative receivership and voluntary liquidation in England, Wales and Scotland. For information on investigations into companies that are actively trading, or which have ceased trading without entering into insolvency proceedings using powers under the Companies Acts see our pages on Company Investigations.
Director Disqualification - When a company has entered into insolvency proceedings, a report is submitted to the Secretary of State by the Insolvency Practitioner detailing the conduct of all directors who were in office during the last three years of the company’s trading. The Secretary of State decides whether it is in the public interest to seek a disqualification order.
Examples of conduct which may lead to these include:
- Continuing to trade to the detriment of creditors at a time when the company was insolvent,
- Conduct which seeks to deprive creditors of assets,
- Fraudulent behaviour,
- Failure to keep proper accounting records,
- Failure to prepare and file accounts or make returns to Companies House,
- Failure to submit tax returns or pay over to the Crown tax or other money due,
- Failure to co-operate with the Insolvency Practitioner
A disqualification order is made by the court under the Company Directors Disqualification Act 1986 (CDDA). It is a civil, not a criminal action. The Act not only applies to a person formally appointed as a director, but also to those who have carried out the functions of a director and to shadow directors.
Without specific permission of the court, it disqualifies a person from:
- Acting as a director of a company,
- Taking part directly or indirectly in the formation, promotion or management of a company,
- Being a liquidator or administrator of a company,
- Being a receiver or manager of a company’s property,
- Acting as an Insolvency Practitioner.
The Insolvency Service has two years from the first insolvency of the company in which to apply for disqualification i.e. the date from:
- The winding up order
- Voluntary liquidation
- Administrative receivership
- Administration
The period can be extended at the discretion of the court.
An order for disqualification can be made under a number of different sections of the CDDA and will specify the period of disqualification. There is a minimum of 2 years and a maximum of 15 years for orders against an unfit director of an insolvent company.
The ban on being a director applies to all registered and unregistered companies formed in England, Wales, Scotland and Northern Ireland. It also applies to foreign companies registered in the UK, building Societies, incorporated friendly societies and NHS foundation trusts.
Disqualification Undertakings
Introduced in April 2001 these are the administrative equivalent to a disqualification order. A director can offer a disqualification undertaking to the Secretary of State. A disqualification undertaking has the same effect as a court order, but does not involve court proceedings.
