Director Disqualifications – Company Bosses Aren’t Invulnerable

Being the Director of a company comes with a great deal of responsibility. Companies which are poorly run and become insolvent can cause wider problems, so there are rules which must be followed by anyone responsible for running one.

A Limited Company is an entity in its own right and has a separate ‘legal personality’ from its owners (who are the shareholders). It is able to have decisions made in its own name, own property, agree to be bound by agreements etc. However, it has no will of its own and it is the job of the directors to make decisions on behalf of the company. These decisions can have serious implications for the suppliers, customers, staff and any other stakeholders of the business in their charge.

The Directors, provided they behave properly within their roles, are not personally liable for the debts or obligations of the company. However, if they have acted wrongfully then there is a possibility that they will become personally responsible where Directors have not behaved properly.

All Directors of Insolvent Companies are investigated

All those people who have been directors of a company in the three years up to the date of administration, liquidation or formal insolvency have their conduct scrutinised. In all cases, a report is submitted to the Insolvency Service. The Insolvency Service then decides whether or not they wish to investigate further. This investigation may lead to disqualification or, in extreme cases, criminal prosecution. It is important to point out that the report that is submitted by the administrator or liquidator does not express any opinion about the directors but just set out the facts of the case. It is the Insolvency Service that decides who, and who not, to pursue.

It has to be said that being a Director of a company which becomes insolvent doesn’t necessarily make that person unfit to run a company. However, where misconduct is found, the decision may be taken to disqualify a person from holding the role of Director of a company, or any position of similar influence, for a period of up to fifteen years.

The intention of these disqualifications is to prevent people who have been deemed unfit to run a business from doing so for a prescribed period of time.

Most disqualifications are arrived at by consent. However, the Insolvency Service does have the power to go to Court to obtain a disqualification order which it does on a regular basis.

Running a business after disqualification

Once a person has been disqualified, he or she cannot be a director of any other company for the period of the ban without first seeking permission of the court.

This includes being a ‘Shadow Director’ – someone who is not formally a Director, but whose instructions are followed as if he or she did hold an official position. This prevents unfit Directors from running a business ‘behind the scenes’ via a third party.

Anyone found to be running a business without leave of the court after having been disqualified risks additional sanctions, which may include an extension to their ban and maybe even a prison sentence. Additionally, the protection from liability usually afforded to the Directors of Limited Companies may not apply to those acting whilst disqualified (or those assisting them) and they may find themselves personally liable for any company debt.

I’m a Director, Should I be concerned?

If you’re in charge of a company which is struggling financially, you’re worried about the company becoming insolvent and whether or not your conduct in your capacity as Director might be viewed unfavourably by the Insolvency service, put an end to the worry and get in touch with us for a free consultation. No matter how bad things are, we can help.