Did you know, that from April 2023 to March 2024, 1222 directors were disqualified with an average length of 8.4 years? Read on to learn more about the disqualification process and what behaviour leads to a director being disqualified.
What does it mean to be disqualified?
If a director is found to be running a business in ways that conflict with their legal responsibilities, they can be banned and prohibited from acting as a director for a specified period of time.
Reasons for being disqualified?
Directors can be disqualified for multiple reasons including:
- Failing to adhere to their legal duties
- Breaching financial regulations
- Bankruptcy
- Fraud
- Trading whilst insolvent
- Using company money or assets for personal benefit
- Failing to keep appropriate records
What happens when you are disqualified?
If disqualified from acting as a director, the individual’s name will be added to the public register at Companies House, as well as the Insolvency Service’s online facility which details recent disqualifications. This cannot be bypassed by changing the job description or passing instructions to manage the company to another.
The director will be forbidden from:
- Being a director of a UK registered company, or an overseas company with UK connections
- Being involved in forming, marketing or running a company
- Acting as an insolvency practitioner
Depending on the disqualification order, the director may be prevented from working within the police or as a legal professional or accountant. Restrictions will be in place for a specified period of time between 2 and 15 years.
Can a disqualified director be reinstated?
During disqualification, a director must apply to the court under section 17 of the Company Directors Disqualification Act 1986 for permission to act as a director or be involved in the formation, running and promotion of a company. As the decision will be made on a case-by-case basis, the court will not always grant permission.
After the disqualification period ends, the individual may act as a director again without the need to seek permission. In this case, the director should ensure that they meet all legal responsibilities to prevent any further action being taken against them.
Who can apply to have directors disqualified?
Although anybody can report a director they suspect of unfit conduct or breach their duties, the following bodies have the powers to apply for disqualification:
- The Insolvency Service
- Companies House
- The Competition and Markets Authority
- A company insolvency practitioner
- The courts
In 2021, the Insolvency Service was granted the power to investigate directors of dissolved and insolvent companies, not just those currently active.
If a complaint is received, the Insolvency Service will investigate the company, or its directors. If it is found that legal responsibilities have been neglected, they will state the reasons and confirm that the disqualification process will be started.
From here, a director has two choices
- Voluntarily disqualify themselves with a disqualification undertaking
- Wait for the matter to be taken to court to defend themselves
How to find out who is disqualified
To confirm whether an individual has been disqualified, both the Companies House register or Insolvency Service database are accessible online.
On the Companies House register, a search will confirm:
- The name and address of a disqualified director
- Start and end date of the disqualification
- Company they were acting for when disqualified
- The reason for the disqualification
This information will be removed once the disqualification order ends.
The Insolvency Service database displays the following information on disqualification orders that have commenced in the last three months:
- Director’s name
- Director’s date of birth
- Last known address
- Start date and length of disqualification
- Detailed summary of the conduct which led to the disqualification
How to report unfit conduct
If there are concerns that a director’s conduct may be classed as ‘unfit’, they can be reported to Companies House.
This includes:
- Continuing to trade despite being unable to pay debts
- Failing to keep proper company accounting records
- Failing to send accounts and Company Tax Returns to Companies House
- Not paying tax owed
- Using company money or assets for personal benefit
How to report someone in breach of a disqualification order?
A disqualified director who continues to do any of the following can be reported to Companies House here:
- Working as a director or member of an LLP (without the court’s permission)
- Getting involved in the promotion, formation or management of a company (without the court’s permission)
- Acting as an insolvency practitioner
- Breaching any other restrictions of a ban
What if the disqualification order is breached?
A breach of a disqualification order will be a serious criminal offence, punishable by a fine and/or prison for up to 2 years. The period of disqualification could also be extended for a further period. Any debts incurred by the company whilst under the management of a disqualified director may become the personal responsibility of the said director.
In conclusion, there are several reasons that a director may be disqualified and serious repercussions for those facing disqualification. If anyone finds themselves facing disqualification, legal advice should be sought.
FAQS
Does this only apply to limited companies?
No, disqualifications also apply to LLPs, building societies, charitable incorporated organisations, registered societies, NHS foundation trusts, protected cell companies, incorporated friendly societies, further education bodies.
What happens to a company if the sole director is disqualified?
All companies must have at least one natural director. Where the sole director is removed, whether by disqualification, resignation or death, and no replacement is appointed, Companies House will take action to dissolve the company.
Can a disqualified director be a sole trader?
Yes, disqualification will not prevent an individual from working as a sole trader.
Can a disqualified director be a company secretary?
A disqualified director can act as a company secretary providing that the duties are not considered to be management of a company.