Disqualification of Director – What You Need to Know

Disqualification of Director – What You Need to Know

Disqualification of director of a company can occur if they do not adhere to legal responsibilities. Details are stored on the Director Disqualification Register. Action that will put you at risk of disqualification can include things such as fraudulent trading, failing to submit annual accounts, or not paying taxes owed by the company.

If you are disqualified as a director, it means that you cannot lead any company in the UK, or any foreign companies associated with the UK for a set period of time. Having such restrictions could have terrible lasting effects and potentially ruin your career and credibility.

So, if you’re curious about director disqualification and how it might pertain to you, read on to learn more.

Most often, a director is disqualified from their position when a company is still operating despite being insolvent. On rarer occasions, directors are removed from office because they knowingly took part in illegal activity.

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How long can a director be disqualified for?

A director disqualification can last for two to fifteen years. Not only will you be banned from managing or starting a company, but you’ll also prohibited from holding other positions of trust.

Government legislation means that it can also be costly to you as an individual. If your company has gone into liquidation and has debts that need to be paid off, then you might also find yourself personally liable financially for those company debts.

What is director disqualification and who governs it?

A director disqualification prevents you from running a company or being a director for the duration of your sentence. In addition, you cannot carry out any duties usually handled by directors, even if you are not an official member of the board.

The Company Director Disqualification Act 1986. The Company Directors Disqualification Act (CDDA) is the primary piece of government legislation that governs director disqualifications and the disqualification process.

Most director disqualification cases arise from a company’s insolvency. If your company is reported to the Insolvency Service, they may open an investigation into either your company or you as its director. Neglecting your legal responsibilities could lead them to apply to the courts for disqualification proceedings against you.

Removing limited company directors

Depending on the nature of your conduct, you could be investigated by Companies House, the Competition and Markets Authority (CMA), a company insolvency practitioner, or even court proceedings.

If you don’t uphold the legal responsibilities that come with being a company director, you can be removed from your position. Additionally, if someone believes a company director is incompetent, they can file a report on the Gov.uk website.

Examples of unfit conduct include:

  • Failing to file a confirmation statement or annual accounts
  • Allowing a company to keep trading when it is insolvent
  • Failure in paying tax owed by the company
  • Failure to keep proper company accounting records and/or filing inaccurate accounts to Companies House
  • Using company money / company assets for personal gain
  • Failing to respond to any liquidator requests

The Small Business, Enterprise and Employment Act 2015 that came into effect in October 2016 enforcement now made directors who have been disqualified to be held personally responsible for their company’s debts and money owed to HMRC.

Disqualification from director positions can leave people with expensive bills, in addition to the other penalties.

Being named as a disqualified director can result in costly financial and professional damages, not to mention the significant reputational damage.

If a director is disqualified, their name will be added to both the Companies House directory and the Insolvency Service’s Register.

These databases can be searched and looked at by anyone; if someone suspects that a director has breached their disqualification terms, they can report this to either of these bodies.

Consequences of director disqualification

If you are disqualified as a director, the consequences preclude you from serving as a director for up to fifteen years.

You will have to resign from your current company and be unable to take on positions such as directorships of other UK companies, partnerships in UK limited partnerships, or directing an overseas company that has dealings in the UK.

Disqualification also prevents you from forming or running a new company. It also prevents you from using a “puppet” director to manage a company on our behalf.

Furthermore, numerous other limitations apply during your disqualification, which may include preventing you from taking up positions of trust.

This encompasses being unable to sit on the board of a school or charity, act as a pension trustee, be registered as a social landlord and more. Additionally, you may not be able practice law or work in accounting.

Any person caught breaching any of the terms of their disqualification should expect further punishment which could mean a severe fine penalty or up to two years in prison.

How long does director disqualification last?

Depending on the severity of your offense and the individual facts of your case, the length of your disqualification will vary. Director disqualifications usually fall into one of three categories. For less serious offenses, you can expect a two-to-five-year disqualification. T

These lower category offences may include negligent or reckless conduct- typically categorized as a failure in judgement rather than an act done with criminal or malevolent intent.

Disqualifications for mid-tier offences range from six to ten years. These types of offences are more serious and may endanger the public interest.

The offences most likely to merit a fifteen-year ban are fraud, embezzlement or other aggravated criminal offence charges carried out with prior knowledge and for personal gain.

Can it affect you once your director disqualification period comes to an end?

At the expiration of your disqualification period, your name and particulars will be removed from the Companies House register.

The Insolvency Service’s register of disqualified directors only contains those who have been disqualified within the last three months, so once that time frame has passed, your information will no longer be there.

Soon after your information is erased from both databases, people will no longer be able to access records of your ineligibility through these sources. Yet, in a digital world, others may still discover such details via other public channels such as online newspaper archives.

Is your company facing insolvency?

If you are the director of a company that is facing insolvency or is already insolvent, contact us here at Company Doctor today on 0800 169 1536 or complete the online form. One of our professional advisors will discuss your options suited to your circumstances.

At Company Doctor, we have our own licensed Insolvency Practitioner with many years of experience.

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