Director Disqualification Explained

Disqualification of a company director or officer is an action taken by a company, statutory regulator or other third party to restrict the ability of an individual person to act as a director again in that company, or in any other company, for a particular period of time.

Such action may be triggered by specific events and circumstances. Disqualification of directors is not as uncommon as you might think. In fact it’s quite common and happens more often than you may realize, thousands of directors having been disqualified over the years in the UK.

This article will explain what exactly disqualification is and when it could happen to you. It will also provide some valuable tips on what you can do if you are threatened with director disqualification.

What Is Director Disqualification?

Director disqualification is a sanction imposed by a company’s shareholders, creditors or a regulator. The purpose is to protect creditors and investors by restricting the ability of a company director to act as a director again in that company or in any other company for a particular period of time. Director disqualification can be triggered in situations where a director is involved in a company fraud or company misconduct. For example, where a company’s directors have engaged in fraudulent activity that has resulted in a loss to the company. Director disqualification can also occur in relation to non-disclosure/misrepresentation to the company’s shareholders, directors, auditor or an external regulator.

When Can a Company Director Be Disqualified?

The most common triggering events for director disqualification are: Liquidation – The director of a company that has been liquidated will be automatically disqualified as a director for a period of five years from the date of the liquidator’s final report. Note: There are some circumstances where the liquidation of a company does not automatically result in director disqualification.

Liquidation of a company occurs when: – the company is unable to pay its debts and the creditors appoint a liquidator to take control of the company’s assets, sell the assets and distribute the proceeds amongst the creditors – the company’s shareholders decide to wind up the company and terminate its existence – the company is unable to operate as a going concern and a court has ordered the company to be wound up.

Voluntary administration – A director of a company that is in voluntary administration could be disqualified as a director under certain circumstance.

Company fraud – A director who has been involved in a company fraud, could, once found guilty as a result of the investigation by the Serious Fraud Office (SFO) or a similar external regulator (e.g. the Securities and Exchange Commission) be disqualified).

Company misconduct – A director who has been involved in company misconduct may be automatically disqualified in cases where an investigation has been undertaken by a statutory regulator (e.g. the Financial Markets Authority’s investigation of insider trading). Note: There are some circumstances where a director who has been involved in a company fraud or misconduct will not be automatically disqualified as a result of the investigation by the SFO or a similar external regulator.

What To Do If You Are Threatened With Director Disqualification

If you are threatened with director disqualification you should act quickly to resolve the situation. Firstly, you should attempt to repair any damage to your reputation at the earliest opportunity. You should also seek advice from a reputable corporate solicitor who is familiar with director disqualification proceedings. The solicitor should be able to provide advice on the likely outcome of the disqualification proceedings against you and the steps you can take to minimize the consequences. If you have been involved in company fraud or misconduct you should consider entering into a settlement with the relevant parties. Depending on the circumstances, you may be able to negotiate a settlement that will result in director disqualification being avoided.

Conclusion

Director disqualification is a serious sanction that will negatively impact a director’s professional reputation. If a director is disqualified, he or she will be unable to act as a director of a company for a specific period of time. The most common causes of director disqualification are liquidation, voluntary administration or receivership, company fraud or company misconduct. If you are threatened with director disqualification, you should act quickly to resolve the situation seeking advice from a reputable corporate solicitor who is familiar with director disqualification proceedings (see https://www.ndandp.co.uk/director-disqualification/ ).