Directors generally enjoy being directors.
Apart from financial advantages such as being able to take dividends and directors loans, they are also the people calling the shots and enjoying the highs and lows of steering their business through calm or stormy economic waters.
Several directors that go through insolvency procedures such as administration or liquidation will also admit that the experience will ultimately be beneficial for them and will learn lessons they can implement in their next professional venture.
Unfortunately, like people, some directors are not on the level and will eventually find that while it might take a while, they will eventually find justice catches up with them.
Additionally, the number of cases referred to their compliance and targeting department which specifically investigates corporate abuse more than doubled in the past year to over 1,000 referrals a month.
It’s no coincidence that the number of directors facing action through misusing the Bounce Back Loan Scheme (BBLS) funds is also on the rise.
In the last full financial year 2022/23, 459 directors were disqualified after being found guilty of misusing money from a Covid-19 support scheme. In April and May 2023 alone, more than a third of all directors disqualifications were for BBLS and CBILS related fraud.
But what is a director’s disqualification and what can directors being investigated expect?
What is a director’s disqualification?
A director’s disqualification refers to the legal action taken by the Insolvency Service, which prohibits an individual from acting as a director or participating in the management of companies according to the Company Directors Disqualification Act 1986.
Who can initiate director disqualification proceedings?
Directors disqualification proceedings are issued if a company director’s conduct is believed/provento be unfit or if they have failed to meet their legal responsibilities. Proceedings are instigated by the Insolvency Service on behalf of the Secretary of State or by the official receiver. Crucially, anyone can report a company director for inappropriate conduct.
On what grounds can a director be disqualified?
Directors can be disqualified for various reasons, including:-
- Allowing a company to continue trading when it can’t pay its debts (wrongful or fraudulent trading)
- Not keeping proper company accounting records
- Failing to submit accounts or returns to Companies House
- Not paying tax owed by the company
- Using company money or assets for personal benefit
How long does director disqualification last?
The duration of director disqualification can vary depending on the severity of the misconduct. Whilst the majority of bans last around two to five years they can last for up to a maximum of 15 years for the most serious offences.
What happens when a company director is disqualified?
If the decision is made to disqualify a director, they will lose their ability to act as a director of any UK-registered company. The restrictions prevent any active management role or position that allows that individual the ability to exert any influence over a company. However, they may still be allowed to work in other capacities or as employees depending on the specific terms of the disqualification order.
Can a disqualified director appeal the decision?
Yes, a disqualified director has the right to appeal the decision. However, a disqualification period cannot be reduced to under two years.
Are there any consequences for breaching a director disqualification order?
If an order is breached, the disqualified director can face criminal penalties such as imprisonment for up to two years and/or a fine. A director may also become personally liable for a company’s debts if acting while disqualified.
Every director or business owner will encounter tough and difficult situations in their role.
Hopefully they will come through them as a better administrator and manager and learn lessons but even if they lead to even tougher scenarios – help is always available for them.
We offer a free initial consultation to anybody who wants some professional and impartial guidance about how they can make positive changes to their business in the short term and beyond.
A member of our team of advisors will be able to offer strategies and ideas depending on the unique circumstances of their company along with options they can implement immediately.
But before any restructuring or rescue can take place – directors have to choose to get in touch first – but this is the easiest and quickest choice they can make.