Member of BTG Global Advisory

Understanding Company Director Disqualification and Your Rights

Company directorship brings with it a legal obligation to act in a ‘proper’ manner when undertaking company business. If you are found to have acted improperly, you may face disqualification as well as other penalties and fines.

Outcomes range from a tarnished reputation to a possible prison sentence in the most severe cases. During formal insolvency proceedings, the Insolvency Service will enquire into the circumstances surrounding the company’s financial misfortunes, looking for any instances of ‘unfit conduct’ as laid down in the Company Directors Disqualification Act, 1986.

What ‘unfit conduct’ means

  • Continuing to trade when you know that the company is insolvent
  • Failing to keep proper accounting records
  • Failure to pay company tax liabilities
  • Not filing statutory accounts and returns at Companies House
  • Using company funds or assets for your own benefit
  • Fraudulent activity
  • Failing to assist the appointed Insolvency Practitioner.

Once your company is deemed insolvent, the appointed Insolvency Practitioner is required to file a report as part of their official duties. This is sent to the Secretary of State for Business, Innovation and Skills.

If it is in the public interest to take further action, and there is enough evidence to do so, proceedings to effect disqualification will begin. There is a statutory time limit of two years from the date of insolvency in which proceedings can take place, but in certain circumstances this can be extended.

Court procedures

The Insolvency Service or other party, which could include Companies House, will notify you of their intention to begin court proceedings, the grounds for taking action, and the ways in which you can respond. Should you disagree with the evidence they have provided, you are entitled to argue the case in court.

You have two other alternatives:

  • Wait for a Disqualification Order from the court
  • Agree to make a ‘disqualification undertaking’ which means that you disqualify yourself, and court proceedings cease.

Disqualification can last for up to 15 years, and may be accompanied by a prison sentence in the most serious cases.

What are the rules of disqualification?

Being disqualified as a company director means that, during the time period stated, you will not be able to become or act as the director of a company without specific sanction from the court.

In essence, you cannot:

  • Be the director of any UK company, or any company based abroad that has connections to the UK
  • Be involved with the formation or running of a company, nor its management or promotion
  • Act in the manner of a company director, for example hiring staff or taking executive decisions
  • Instruct a third party to manage a company under your direction. This can result in prosecution for yourself and the third party, with the person under instruction potentially becoming liable for company debts.

You are not barred from working as an employee for the same company, but you would need to be very careful how you represented yourself, and what roles you became involved with, unless you have court permission to undertake the duties of a director.

You can also be a sole trader or join a partnership, as long as it is not a limited liability partnership.

Breaking the rules of disqualification is viewed as a criminal offence which could lead to a prison sentence of up to two years, plus a further period of disqualification. You could also become personally liable for any company debts incurred during the time when the disqualification order was being contravened.

Additional restrictions on disqualified directors

Bans and restrictions on disqualified directors are wide-ranging. You may be prevented from being an accountant, solicitor or barrister if your professional body objects. Your eligibility to act as a trustee for a charity or school may also be affected.

Additionally, you would need the consent of The Pensions Regulator to be the trustee of an occupational pension scheme.

Disqualification is a public matter. Your details will be available online at Companies House, and for the first three months following your disqualification, you will be included in an Insolvency Service register.

Your right to seek permission from the court to act as a director

The Company Directors Disqualification Act allows for disqualified directors to apply to the court if they have a ‘reasonable need’ to act as a company director again.

Should the court agree with a request such as this, however, they may put restrictions in place on the duties that can be performed.

As you can see, director disqualification is a serious matter, but we can provide professional advice on what to do next should you be at risk of disqualification. Begbies Traynor have offices spanning numerous UK locations and offer a free same-day meeting.

Contact our team

Latest News
York taxi company placed into administration
York taxi company placed into administration
On 25th November 2016, Rob Sadler and Dave Broadbent of Begbies Traynor in York were appointed as joint administrators of Six Five Nine Cars Ltd. The business, which has traded in York for over 15 yea…
40 jobs saved as gaming retailer sold out of administration
40 jobs saved as gaming retailer sold out of administration
Administrators of a South West-based gaming retailer have succeeded in saving 40 jobs at the company after securing the sale of the business, including 12 out of 15 of its High Street stores. Business…
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Nearly 100 jobs saved as bars and restaurants are sold out of administration
Almost 100 jobs have been saved by the successful sale out of administration of a number of Midlands bars and restaurants. Town and Country Inns plc appointed business recovery and rescue specialists …
Begbies Traynor opens new office in Taunton
Begbies Traynor opens new office in Taunton
The UK's leading independent business recovery practice, Begbies Traynor, has opened an office in Taunton.  The move will enable the firm to build on work it has already done in the town and with the…
Brexit uncertainty puts the brake on London businesses
Brexit uncertainty puts the brake on London businesses
New research reveals that British businesses from Land's End to John o' Groats have shown surprising resilience since the EU Referendum result was announced, with levels of financial distress falling…
UK businesses remain resilient in the face of Brexit
UK businesses remain resilient in the face of Brexit
UK businesses across nearly every sector of the economy were showing positive signs of stability following the EU Referendum, new research from Begbies Traynor, the UK’s leading independent insolven…

Advice You Can Trust

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland