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How can I defend a Director Disqualification claim?

Following the insolvency of your company and the subsequent investigation by the liquidator and Insolvency Service, under authority of the Secretary of State for Business, Energy and Industrial Strategy (the “Secretary of State”), it is possible that if your running of the company is seen to warrant further investigation and/or censure then there may be considered to be grounds of misconduct that could lead to proceedings for disqualification being considered.

It is possible, if you are targeted for disqualification, for you to be disqualified by order of the court or by offer to the Secretary of State a Disqualification Undertaking which is a way of voluntarily becoming disqualified and which has the advantage of you avoiding potential substantial costs.

One of the principal reasons for the Secretary of State to engage in disqualification proceedings is to be able to present to the public, evidence that the government is trying to protect them from directors who abuse the system and run up large sums of monies that creditors end up losing out on. This means that the cases which are selected for issue are usually considered to be extremely well evidenced and are likely to be successful, in the minds of the Secretary of State and the Insolvency Service, in achieving either a disqualification order or undertaking.

The claim

If a claim is issued against you then it does not follow standard procedure. The claim form is not supported by particulars of claim but by an affidavit and exhibit. These stand as the grounds for the suspected misconduct and the evidence which has been found to substantiate it by the Insolvency Service.

If the claim is issued then it will be allocated a court number and a date for a hearing will be fixed in the court diary. This is then communicated to the director or directors when the papers (the Claim form, affidavit and exhibit) are served on them by the Secretary of State or by the solicitors acting for them.

Once you have received the papers from the Secretary of State then you will have 28 days to send back to the solicitors acting for the Secretary of State your response to the allegations which are contained within the affidavit. If this were normal court proceedings then this would be your defence and, in these disqualification proceedings, the response which comes in the form of an affidavit stands as your defence to the proceedings.

There will then follow further evidence from both sides until ultimately you, your solicitor and barrister will have to attend the court to argue that you should not be disqualified. That hearing will be based on the evidence that has been filed by both sides and the arguments which can be generated from it by the barristers instructed by both sides.

Evidence in the proceedings

If you instruct us to represent you then we will discuss with you the position that you wish to take in respect of the allegations being put against you in the proceedings. The evidence to back up your position does not only have to come from you or other co-directors although that will be critical and the court will, in our opinion, expect you to provide that evidence.

It is important for you to introduce evidence from other individuals who worked for or with you at the company. This evidence, independent from you, will be submitted to the court on your behalf and will be considered by the solicitors acting for the Secretary of State and the court at the final hearing.

If you have additional persons who are prepared to give evidence on your behalf which you and your solicitors believe to be useful then it is necessary to explain to that person or persons that they will need to attend court and be questioned by the court and both barristers as to the evidence which they have given in their evidence.

The Evidence you give

Unfortunately there is no specific precedent for the evidence that you need to provide in proceedings for your disqualification. However, should you choose to defend the proceedings, it will be necessary for your evidence to counter the allegations which are contained within the affidavit and, where possible, be substantiated by documents which can be exhibited to your affidavit.

The intention in the evidence is to achieve two principal things, in our opinion, the first is so that it can make it clear to the court that you, as the director, were not behaving in a way that would put the company, or its creditors, at risk. The second is to counter the evidence that has been put forward by the Secretary of State so that your barrister can use your evidence to give the court the ability to question their evidence and its strength.

The Costs Risk

The cost of you defending proceedings issued by the Secretary of State are not insubstantial. You will be responsible for the costs incurred by us, your solicitors, by counsel who will be instructed on your behalf by us in trying to convince the court that you should not be disqualified. In addition, if it is necessary to instruct experts or get additional witnesses to present evidence for you then not only will this generate further legal costs there will be further incidental costs of the witnesses which you will be responsible for.

If you are successful at the final hearing, or at any point before, then you will be able to recover a large percentage of these costs from the Secretary of State. You would usually expect to recover up to around 75% of those costs you incurred. If you are unsuccessful then not only will you have paid all of these costs you will also be responsible for the costs of the solicitors representing the Secretary of State, again around a figure of 75% would be a sensible starting point.

The total costs of defending a claim issued by the Secretary of State, unsuccessfully, will be in the region of £75,000 to £125,000 plus VAT. This is only a rough guide as the figures vary a good deal from case to case.

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