Director Disqualification

How to Avoid Disqualification When You Fall Foul of the Regulations

If you persist in failing to fulfill the legal duties incumbent upon you or you demonstrate conduct that is improper, disqualification as a company director can, and often will, halt your directorship in its tracks. 

As a company director, you have a legal obligation to act in an appropriate manner whenever you are partaking in company business. 

If it is found that your actions have been improper, you could not only face disqualification, but there may also be other penalties involved as well as fines. 

There are a number of possible outcomes in this scenario ranging from your reputation being tarnished right through to a prison sentence when the wrongdoing is particularly severe. 

Throughout formal insolvency proceedings, enquiries will be made by the Insolvency Service as to the circumstances dictating your company’s financial hardship. Any and all instances that involve “unfit conduct” as per the Company Directors Disqualification Act, 1986 will be assessed.

What Does “Unfit Conduct” Mean?

  • Continual trading even though you are aware your company is insolvent.
  • A failure to maintain accurate accounting records.
  • A failure to make payments for tax liabilities.
  • Utilising the company’s assets and/ or funds to your own benefit.
  • A failure to file statutory accounts and returns with Companies House.
  • Partaking in fraudulent activities.
  • A failure to fully assist the insolvency practitioner that is appointed to oversee your case.

After it is deemed that your company is insolvent, the insolvency practitioner must file a report with the Secretary of State for Business, Innovation and Skills.

It may then be considered that it is within the public interest to undertake further action. 

Should there be enough evidence, disqualification proceedings will commence. 

Director Disqualification – How to Avoid it

It’s not easy to offer advice with regards to director disqualification given that every case is different and every case is specific in terms of the director’s behaviour. 

Nevertheless, there are some preventative and generalised rules that can be followed.

  1. Always follow the rules

The best way to avoid disqualification as a company director is to stick to the rules. 

Records should be complete and comprehensive. Returns must be submitted in a timely manner. All taxes must be paid. And full cooperation with the proceedings of the insolvency should be adhered to. 

If you do choose to follow the rules, chances are that you will avoid being disqualified as a director, regardless that your business becomes insolvent or otherwise.

  1. Be sure to fully understand your responsibilities

It’s a must that you completely understand all of your legal responsibilities in terms of being a director. 

If your conduct is being investigated by the Insolvency Service, you can’t claim that because your accountant administers all of your business stuff the mistakes made are the fault of the accountant.

Obviously, your accountant has no legal duty to work as a director. Further, your accountant is not going to be struck off, and they will not be made personally liable in terms of your company’s debts.

You may be unsure of the obligations you have as a director. In which case, you should seek advice from an appropriate professional: an insolvency practitioner; a corporate solicitor; or a chartered accountant. 

  1. Get insolvency advice 

At the first signs of your company beginning to struggle, that’s the time that you should seek insolvency advice and not later. If you decide to leave it later because of your persistent optimism, it could prove to be too late. 

All of the advice you get should be documented. This is because you may have a need to refer to it or present it at a later date. 

If you do make a decision to continue trading, it’s good policy to maintain records detailing your reasons for doing so. 

Likewise, you should include evidence within these records to demonstrate your tracking activities with respect to your financial position. This way, it’s easier to make a decision about when or if it’s appropriate to wind things up.

Are You Worried About Being Disqualified as a Director?

When you are seeking advice as well as support – and there is plenty of support out there – do keep in mind that the waters are shark-infested.  

Should someone tell you that it’s possible to erase all of your problems and they will do it for a fee – typically the fee being a certain percentage of what you owe – then you should be very skeptical of taking them at face value.
Their promises may very well turn out to be false and misleading. But it’s not them that is at risk of being struck off – it’s you. In the end, if you are really worried, you need to seek out a firm who have some experienced director disqualification solicitors on their staff. Only then will you be able to sleep well in your bed.