Directors disqualification – what you need to know

The process which gives the Insolvency Service the ability to seek an order from the court, or disqualification by agreement through the signing of a Disqualification Undertaking, was introduced by the Company Directors Disqualification Act 1986.

This act was introduced by the government of the time with the aim of demonstrating that it was making every effort to protect the public from any director who they could demonstrate was seeking or had sought to abuse their position of trust as a director of a company.

It is not true to say, however, that if you are disqualified as a Director that you cannot run your own business or that you cannot run a business with another person, in the form of a partnership or make an application for permission to be involved in the management of a company during your disqualification. However it does put a block on you being involved, without making an application, as a Director of a company which benefits from limited liability or a partner if the partnership benefits from limited liability.

If you are a Director and your company suffers financially and ultimately ends up being made subject to either a compulsory liquidation, a voluntary liquidation or indeed an Administration, then as part of the Liquidation or Administration process there will be an investigation into the actions taken by you, as a Director, and your conduct generally in the period which precedes the failure of the company and the appointment of the Liquidator or Administrator will be examined. This can then lead, depending on decisions made at the Insolvency Service, to a detailed investigation by the Insolvency Service to determine if there are grounds to disqualify the Director.

Whilst the decision to try and disqualify a director who has been involved in the liquidation or Administration of a company will be subject to a lengthy and detailed investigation, it is also true to say that if a person is declared bankrupt by the court, for whatever reason, then there will be an automatic director disqualification order made at the same time.

The director, who faces the disqualification proceedings, faces up to 15 years of not being able to be involved in the promotion, formation or management of a company.