What You Need To Know About Director Disqualification And Insolvency

To Know About Director Disqualification And Insolvency

Directors are able to be disqualified for a variety of reasons, which includes fraudulent trading, wrongful trading or even “unfit” conduct. In failing to meet up to your required duties in the role of a director can result in investigations followed by disqualification.

Information in this article is associated with the CDDA (Company Directors Disqualification Act 1986). This is complex subject matter, but extremely important for any director to know about when reviewing the insolvency of a company, and how this person acted in association to it. To begin with it is of importance to know that when your company is going into a state of liquidation it does not translate into automatic bans on the directors. You are still able to begin another limited business, and there are also no “automatic” assumptions in regards to wrongful trading and you will not lose your home.

The CDDA Act involves little known yet extremely significant powers that seek out to ban the “unfit” directors from being a director of limited liability businesses. These actions will only begin when it has been proven that a director acted badly, fraudulently or wrongfully. This means that government agencies will have to first prove “unfit behaviour” or “wrongful trading” before action will be undertaken.

How To Avoid A Disqualification During Insolvency

In the majority of cases insolvency will not usually result in a disqualification of a director. In actual fact, only around 5% of disqualifications are a result of an insolvency. The CDDA will be used only when the director has been proven to have acted fraudulently, wrongfully or very badly. However, it is important that a director is very aware of their duties in the role of a business director all the time, especially when indications are prevalent about the company going into a financially difficult time.

This means for the director that administration must be handled properly and that all forms must be submitted to the Companies House on time. In the situation that insolvency seems to be the way that the company is going, the director must do everything in their power to protect this company along with its creditors. If the director does not take any actions and allows this company to fall deeper into debt, the director can become personally liable or even disqualified. At this stage it is of importance that the director records each action that they take or their representations to other directors with board minutes, so these records can be used or referred to into the future.

When Can A Company Director Be Disqualified?

Under the CDDA Act, a court is allowed to disqualify directors for these reasons:

  • Any type of general misconducts in association to the company
  • If the director has been convicted of indictable offences in regards to formation, promotion, liquidation or management of this company
  • Involved in fraud at the stage of a liquidation
  • In regards to unfit conduct in the role of a director which as at this time has become insolvent

With all this in mind, it is essential that you take advice as soon as the possibility of your company becoming insolvent comes about.

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