What happens if I receive a Directors Disqualification ‘Section 16 Letter’?
How do I respond to Section 16 Letter
If you are unfortunate enough to receive a Section 16 Letter, there are a number of options open to you:
1. Ignore the letter or Do nothing
Unfortunately, this one is likely to be your first thought but if it is ultimately what you choose to do then it is, in all likelihood, going to result in the most harmful outcome for you and your future.
If you should choose not to respond to the Section 16 Letter, then it is likely that proceedings will be issued (in the name of the Secretary of State for Business Energy and Industrial Strategy or the Official Receiver) and, should you continue to ignore the proceedings, that a Disqualification Order will be made by the court for the full disqualification period as set out in the Section 16 letter or potentially a higher period at the court’s discretion. The court will also usually include an order that you pay all of the Secretary of State’s legal costs, which can be substantial depending on the case and the amount of time that has passed.
We have also seen, from time to time, directors making the choice to defend the Disqualification proceedings themselves, without seeking legal advice – usually in order to save costs. In our experience, we know that choosing to deal with this yourself is likely to lead to you receiving both a Disqualification order from the court and a higher costs bill to add to your problems.
2. Seek Advice
The best option, in our opinion, is that you seek legal advice as soon as possible after you receive the Section 16 Letter. We will be able to tell what the contents of the Section 16 Letter states, what it means for you and the risks that you face – depending on how you deal with it. We would also be able to give you an indication, following the initial conversation, as to whether or not – with your input – there are grounds that we can use to help you to defend the disqualification claim.
3. Agree a Disqualification Undertaking with the Secretary of State
Another option you have, and as we have found through our experience the most commonly chose, upon your receiving a Section 16 Letter – from the Insolvency Service – is to accept a Disqualification Undertaking. The giving of a Disqualification Undertaking is a voluntary action which will lead to you being disqualified as a director and, as a result, be unable to act in the promotion, formation and management of a company. This inability to be involved will last for the entire period of disqualification that is agreed between you and the Insolvency Service and which forms the undertaking to which you will agree.
To consider the pros and cons of accepting a Disqualification Undertaking then please click on the link here.
4. Make Representations to the Insolvency Service/Secretary of State
In our opinion, the best outcome – for you – once you have received the Section 16 Letter and sought advice from solicitors (with experience in this area of concern) is to then begin the preparation of a letter of representations to send to the Insolvency Service or the solicitors who have been instructed by the Insolvency Service. The letter of representations should set out, in detail, the basis on which you believe that you should not be disqualified as acting as a director.
The letter of representations which we produce – based on your input to the allegations and evidence that the Insolvency Service has put forward in the Section 16 Letter – will contain your comments and responses to the allegations together with any evidence that you have, that has not been put forward before, for the Insolvency Service to consider. We would hope, through the content of the letter of representations, to persuade the Insolvency Service (ultimately the Secretary of State) that the Disqualification Claim which they have presented, within the Section 16 Letter, does not have sufficient merit to substantiate proceedings.
There will be an expectation, within the process, from the Insolvency Service that they will receive from the director an explanation as to why they do not believe that the allegations have merit to make them worthy of court proceedings. This is an integral part of the ongoing process in order to ensure that those cases that are not strong are prevented from being issued at Court.
Our team has a large amount of experience in dealing with Director Disqualification proceedings having represented both the Insolvency Service/Secretary of State as well as directors who have received Section 16 Letters. We have, as a result, a great deal of experience in making clear the director’s position (which a director may find difficult) and, in doing so, being able to convince the Insolvency Service/Secretary of State that to issue proceedings would not be in the public interest.