Disqualification of directors
Disqualification Orders
Where a Company enters into insolvent liquidation, there are various circumstances where a disqualification order may be sought by the Secretary of State.
Some of the more common situations where such an order is sought include:
- The director allowing a company to continue trading whilst it is insolvent.
- The Company not maintaining proper accounting records.
- The Company not sending relevant accounts or returns to Companies House.
- The Company not paying tax which is due to be paid by the Company.
- The director breaching his fiduciary duties.
- The director using Company funds for his own benefit.
- The Company carried on business with the intent to defraud creditors.
Such an application must generally be made with the Court within a time period of 3 years from the date of the Company’s insolvency.
A disqualification order prohibits the relevant person from being a company director or otherwise from becoming involved in the formation or management of a Company. It does not prevent the person from working or carrying on business as an employee, or a sole trader or as a partner (of a partnership which is not a limited liability partnership).
The court can sentence the disqualified director to up to 2 years in prison and/or fine if he acts in breach of a disqualification order. The director will also be personally liable for the debts of the Company in relation to which a disqualification order is breached.
The disqualification period can be from the minimum of 2 years up to 15 years.
Disqualification process is conducted by the Insolvency Service / the Treasury Solicitor. They are fairly aggressive. Undertakings may be offered for fairly lengthy periods of time. It is possible to negotiate to with the Insolvency Service within a limited extent.
The cost of defending disqualification procedures is normally quite extensive.
Advice should be sought if a disqualification order is sought or if a disqualification undertaking is offered.
Please click here or call 0208 446 6223 or email enquiries@sr-law.co.uk for assistance from our experienced team.