A director of a company can be disqualified for not adhering to the duties of a director as set out by the CDDA (Company Directors Disqualification Act of 1986). Many of the main reasons include wrongful or fraudulent trading or unfit conduct which could result in an investigation and disqualification. The CDDA contains very significant powers to stop directors who have been found to be ‘unfit’ from becoming directors in any limited liability company for a set period of time, usually fifteen years. However, before any action is taken the government agency has to prove unfit behavior or wrongful doing has taken place. Disqualification only happens when a director has been found guilty of acting fraudulently, wrongfully, or in some other way, very badly.
As well as this, the Small Business, Enterprise & Employment Act has introduced further measures since October 2015 to disqualify directors who have been involved in insolvent businesses in the past or who have had an influence on other directors who operated insolvent businesses.
Directors involved in offences outside of the UK can now also be disqualified if a court so finds.
Director disqualification is a very serious issue which will be registered at the Companies House,where all new directorships are recorded. Details of disqualified directors can be provided to any interested party on request. If a court has made a disqualification order against a director or the Department has accepted a disqualification undertaking, a director can be sent to prison if the order or undertaking is not complied with.
What are the Restrictions on Disqualified Directors?
It is always best for disqualified directors seek advice from a solicitor or insolvency practitioner to fully understand the exact consequences of the particular order or undertaking that may be applied, and the effect it will have. It does not stop a disqualified director from having a job, however, unless court permission has been granted it does not allow:
- Being a director of a company
- Acting in the capacity of a receiver of company property
- Taking part in or being concerned with the formation,management or promotion of a company
- Acting as an insolvency practitioner
- Holding various offices such as the trustee of a charity
Plus,while a director disqualification order or undertaking is in place a disqualified director cannot:
- act in the capacity of a director and the order or undertaking cannot be avoided by simply changing a job description
- allow other individuals to manage a company under their direction
The order or undertaking allows a disqualified director to carry on business in partnership with others or as a sole trader but cannot be a member,take part in or be concerned with the formation,management or promotion of any limited liability company.
The abovementioned prohibited acts and restrictions apply to all companies formed in England,Northern Ireland,Wales,and Scotland as well as foreign companies if:
- the company is registered in the United Kingdom
- the company has sufficient connection even if it is not registered in the UK,for example,it has assets or carries on business in the UK.
These prohibited acts and restrictions also apply to building societies or incorporated friendly societies.
Permission to Act in a way Otherwise Prohibited by a Director Disqualification Order or Undertaking
A formal application has to be made under Article 21 to the High Court for permission to act as a director of a company or to carry out anything else prohibited by the order or undertaking. The court will have to be satisfied that a reasonable need exists before granting permission. However,a court can never grant a disqualified director permission to act as an insolvency practitioner. The court will also have to be content that if permission is allowed the public will be totally protected and may set conditions and require certain safeguards.
If the order or undertaking is contravened it becomes a criminal offence which could result in a fine or a prison sentence of up to 2 years. A disqualified director could also be personally liable for any debts incurred by the company while the order or undertaking was being contravened. Any person acting under the direction of a disqualified director could also be held personally liable for such debts.
