You may be removed as a director if you do not fulfil your legal obligations. To avoid this, and to gain a better understanding of what can be done, it’s important to understand the reasons for disqualification and the responsibilities and obligations of a director.
What is director disqualification?
A director’s status can be terminated through the process of corporate director disqualification, in which a person is ruled out for a specific length of time from acting as a company director or indirectly participating in the promotion, formation, or management of a firm without permission from the court. The Company Director Disqualification Act 1986 (CDDA) provides the legal
Disqualification Insolvency proceedings are a civil, not criminal, process.
Who does this apply to?
It’s critical to grasp the scope of the law. It applies not just to those who have been formally designated as a director, but also to those who have acted as a director without being formally designated, to shadow directors and others who have instructed a disqualified director to act in an irresponsible manner.
What are the conditions for disqualification?
The number of professional golfers who have been barred from competing at the US Open has steadily decreased. In fact, over the past decade, fewer than 1,200 players have been banned from participating in any PGA Tour event.
You can be disqualified from the court if you:
- Unfitness for company management includes, among other things, promotion, formation, management or liquidation of a firm.
- Trading while insolvent (trading in an unsustainable way)
- Failure to comply with filing requirements under the Companies Act is a common occurrence.
- Competition law breaches
- The most frequent causes of stock market fraud are:
If your employer suspects that you are unfit to hold the office of director, it may come to the conclusion that you are unsuitable.
- Creditors are attempting to take the stuff away from you.
- When a firm is insolvent, investors continue to trade at the expense of creditors.
- Fraudulently, they are not untrustworthy.
- Records are not maintained in accordance with national accounting standards and regulations.
- You submitted account or return documents, but they were denied because you didn’t prepare and submit them.
- You have not submitted tax returns and/or paid the taxes owed in a timely manner.
- Other regulatory obligations were not met.
- The official receiver and/or insolvency practitioner was unable to work with you.
What happens?
At the present time, the official receiver, liquidator, administrator, or receiver is obligated to provide a report on the conduct of all directors in office during the three previous trading years if a firm has gone into a formal insolvency procedure.
This is sent to the Insolvency Service, which is responsible for the Secretary of State for Business, Energy and Industrial Strategy.
The officeholder is obligated to notify the court whether any of the directors’ actions appear to meet the criteria for disqualification. The Insolvency Service has the authority to launch investigations into corporations and limited liability partnerships.
This applies to non-trading firms that have terminated their operations or are currently trading. They do not have to go into bankruptcy procedures.
The Insolvency Service may receive information that suggests serious corporate abuse has occurred, either from members of the public, workers, or official regulators. The service will determine whether it’s in the public interest to investigate further and, if so, whether to seek a disqualification order based on the data it receives.
From the moment you submit your application, we will be in contact with you again to discuss progress and answer any questions.
The director will be notified by mail once a final decision has been made to request a disqualification order.
If the director does not respond or a settlement cannot be reached, the case will go to court. At this point, a formal notification of the lawsuit will be sent to the director.
Disqualification undertakings
The Secretary of State may accept a voluntary resignation from a director as an alternative to beginning court proceedings if he or she wishes to assist speed up the process.
Under Section 1A of the CDDA, this is permitted.
The advantage of giving a voluntary disqualification agreement to a director is that they will not have to pay the expenses of going to court. They may also be given a reduction in the length of any suspension period.
The Secretary of State is the ultimate authority on whether or not to accept a voluntary withdrawal agreement.
A person who is currently declared bankrupt will be able to apply for and continue with a bankruptcy court application for a disqualification order if he or she meets the following criteria:
A violation of the terms of the agreement has similar criminal and civil ramifications as a violation of a disqualification order. It is vital to seek legal counsel before signing up for a voluntary disqualification agreement since both have the same penalties.
What are the consequences of a disqualification order/undertaking?
As a consequence of the disqualification order or undertaking, the individual is disqualified by the CDDA for the period stated in the order or agreement from:
- Being a company director
- Taking part, directly or indirectly, in the formation or management of a firm or limited liability partnership
- Taking possession of a firm’s property.
- acting as an insolvency lawyer
Additionally, law and regulations impose additional limitations on those who are disqualified.
Charities, schools, pension trustees, police and police authorities, registered social landlords, health boards and social care bodies (among other things), solicitors, barristers, accountants and other professionals are among those who impose restrictions.
A disqualification order or commitment can have a significant influence on one’s professional life.
Periods of Disqualification
The minimum duration of a disqualification order is two years, and the maximum is 15 (6(4), CDDA 1986). The primary goal of disqualification is to safeguard the general public.
A minimum period of disqualification is required to deter buyers or customers. This implies that a deterrent element should be included in the prohibition period. The duration of blacklisting must take into account a variety of factors, as well as the facts of the case. [1991] Ch 164 split up the period of disability into three categories in Re Sevenoaks
Two to five years
If your charge is less serious, you may be prohibited from competing in this lower bracket period.
Six to 10 years
The third degree is commonly imposed for conduct judged to be very irresponsible or serious, but not severe enough to merit the top class.
10-15 years
The top bracket period is used for the most serious instances of misconduct, and it’s often for cases of fraud – the most recent notable examples include carousel (or MTIC) fraud, land banking, and mis-selling allegations.
Sanctions for acting while disqualified
They are committing a criminal offence by disobeying a disqualification order or undertaking. They can be fined, imprisoned for up to two years, or both. A further suspension might be issued as a result of the ban.
The court has the power under sections 15A, 15B and 15C of the CDDA 1986 to order a compensation payment against, or accept a compensation undertaking from, a disqualified individual.
The court may do so where the conduct for which the person was disqualified has caused loss to creditors of the insolvent company of which the person was a director.
Relief from liability
If a director is found liable for gross negligence, default, or breach of duty or trust by a court, the director may be relieved of responsibility if the following conditions are met:
- The director has acted in a respectable and responsible manner.
- Given the circumstances of the case, it is clear that he or she should be excused.
Obtaining permission to act as a director while disqualified
A person who is subject to a ban or injunction may apply to the court for permission to act as a director or take part in the promotion, creation, or management of a named firm under section 17 of the CDDA.
The applicant will have to show that they have a genuine need to do what they are asking for, not just that they want to be a director. The court will also want to know whether the public would be adequately protected if it grants the permission requested. As a result, the court may order additional safeguards and place further restrictions on the applicant.
Professional advice
This is a tricky area of company law, and one that necessitates a deep knowledge if an acceptable result is to be achieved. The ramifications of a disqualification order or self-imposed ban are far-reaching. If you find yourself subject on the verge of being disqualified, you should contact Richardson Lissack right away for expert counsel.
