Claims for the disqualification of a director are brought against those who acted as directors, with the purpose of protecting the public interest. The most common situation in which a director’s disqualification claim is brought is against directors of insolvent companies. A disqualification order will be made against a director where there is a public interest that this director be prevented from acting as one again.
Often when a company is placed in an insolvency procedure, the office-holder will make investigations into the conduct of the directors. This may reveal information which gives rise to the question of whether a director should be disqualified.
Most commonly, disqualified directors are found guilty of misconduct.
Examples of misconduct:
Where a director is being investigated, he/she will be provided in writing with notice of such investigations.
The director is prevented from acting as a director in any limited company; in any limited liability partnership or as a representative of certain incorporated charitable associations. The disqualification order is registered on a public list at Companies House, which might affect the director’s credit worthiness. A director can be disqualified for a period of up to 15 years.
There are other restrictions, including:
If the director’s misconduct caused loss, a compensation order could be made against the director. This means that the director will be held personally liable for the loss suffered.
If a director breaks the terms of the disqualification, he/she can be fined or imprisoned for up to two years.
If you are a director faced with the prospect of being disqualified, the following options are available to you.
Give a ‘disqualification undertaking’ – this means that you will voluntarily disqualify yourself. This option avoids the stress, expense and time involved with defending yourself at court. But, you will lose the chance to defend yourself, and potentially succeed, at court.
Defend yourself – you are within your rights to defend yourself against a disqualification order. However, it is advisable to take legal advice so as to assess the likelihood of being successful, and for assistance in progressing through the process.
Seek leave to act from the court – if you have been disqualified, you may seek from the court leave to act, despite being disqualified. You would need to show that there is a need for you to act as a director, and that there is no risk to the public if you do so.
If you are a director faced with the prospect of being investigated and disqualified, we at Farleys will be able to provide you with advice on your position and the steps going forward. Please get in touch with Farleys’ insolvency team on 01254606008.
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