These are claims brought against directors only or other types of directors who do not strictly fall within the legal definition of a ‘director’. For example, ‘De Facto’ directors or ‘Shadow’ directors can also be disqualified.
The rules of director disqualification are laid out in the Company Directors Disqualification Act 1986. Their purpose is to attempt to stop the misuse of the limited liability company in England, Wales and Scotland.
Legal proceedings under the Company Directors Disqualification Act must be commenced against the director within two years of the date of the formal insolvency of his/her company.
If you are disqualified you will be unable to become a director of a company without the prior agreement of the court or be directly/indirectly involved with the setting up, management, or promotion of a limited liability company or limited liability partnership (LLP).
Disqualification can last from 2 years up to 15 years. Further, if you ask someone else to manage a company under your instructions whilst banned could result in the third party also being prosecuted.
There could be numerous reasons for disqualification. Some examples are set out below: –
Insolvency practitioners are required to comment and file a formal report with the Secretary of State detailing whether:
A disqualification order does not prevent you from taking a job with a company or from operating as a sole trader. The material distinction is not to behave as though you are a director or ask others to act on your behalf. If you are required to undertake any management role(s) such as hiring staff, controlling the company bank account or taking what could be seen by others as executive decisions, you could be breaching the disqualification order.
If the disqualification order is breached, you will be committing a criminal offence and could face a prison sentence of up to two years and a fine plus a further period of disqualification. You could also be personally liable for any company debts incurred when the breach took place.
As well as having a direct impact on any potential role in a limited company or limited liability partnership, other areas of life can also be affected, for example: –
An undertaking is alternative way to avoid being disqualified by the court. You will be required to sign a document which sets out the Unfit Conduct you have been accused of whilst being a director. It is a quick and cost effective process and the undertaking can be entered into either before or after commencement of legal proceedings.
A director who is disqualified whether by court order or undertaking will have his name included on a central Register of Company Directors which is available to view by the public at Companies House or on the Companies House website.
You are allowed to apply through the court to become a director again if the need is urgent and/or absolutely essential to a company’s success but certain measures (or safeguards) would need to be put in place to protect the public and restrict your powers.