Being disqualified as a director can have serious implications on your professional and personal life. A director is at risk of being disqualified if they fail to fulfil their legal and directorial responsibilities. That’s why it’s so important to be aware of the grounds for the disqualification of directors, and how to comply with them. The terms under which the disqualification of directors is decided is based upon the Company Directors Disqualification Act 1986. This sets out the responsibilities of company directors and the circumstances in which they could be disqualified. These include:

Wrongful Trading

One of the biggest risks for the disqualification of directors is trading whilst insolvent. When a company enters insolvency proceedings, the conduct of the directors will be investigated, and this will include looking for any indication that wrongful trading has taken place. If a director is found guilty of wrongful trading then they could be made personally liable for the outstanding debts that are owed to creditors.

Unfit Conduct

The disqualification of a director may also occur if there is evidence of ‘unfit conduct’. This may include:

  • Continuing to trade whilst knowing that the company is insolvent
  • Continuing as a director whilst bankrupt
  • Failing to pay tax or to submit tax returns when required
  • Using company money or assets for personal benefit
  • Accepting customer deposits but failing to provide goods or services
  • Failing to submit the necessary accounts to the Companies House
  • Attempting to deprive creditors of assets
  • Failing to keep adequate accounting records
  • Preferring one or more creditors over others
  • Disposing of assets at an undervalue
  • Fraudulent activities
  • Failing to comply with instructions from the Official Receiver or with a licensed insolvency practitioner

Failing To Adhere To the Filing Rules Set Out In The Companies Act

Another reason that the disqualification of directors may occur is due to a breach of The Companies Act 2006. This act is in place to ensure that all accounts are accurate and fair. The act outlines the requirements for preparing the annual accounts, what must be included, and how they should be disclosed and filed. Depending on the size of the company, the rules will differ and so it’s important that directors are aware of the regulations for their company in order to prevent being put at risk of treading on grounds for the disqualification of directors. 

Failing To Comply With Competition Law

Competition law is in place to monitor and maintain market competition by regulating anti-competitive conduct by companies. Failure to comply with competition law can result in disqualification for directors. Anti-competitive behaviours that count as grounds for the disqualification of directors may include bid-rigging or fixing prices.

What Are The Consequences Of The Disqualification Of Directors?

When a director is disqualified they are immediately banned from acting as the director of another company for the period of disqualification which could be between 2-15 years. The disqualification of directors also involves being banned from forming, managing or promoting a new company or carrying out any duties associated with the company director, such as making executive decisions. It is also prohibited for directors to appoint someone else to monitor the company under their guidance. 

In the event that the director has engaged in illegal or unfit conduct, they can be made personally liable, or in the worst case scenario they could be facing criminal convictions. The disqualification of directors can also have an impact on aspects of the directors’ personal lives. For example, they may not be able to become a school governor or a trustee for a charity.

The Importance Of Seeking Professional Guidance

Whilst the disqualification of directors can be caused by deliberate wrongdoing, in many cases misconduct occurs because a director is not informed about how to adhere to the necessary legal obligations. If your company is facing financial difficulty, you should consult the advice of an insolvency professional who will be able to advise you on the best options for your company, ensuring that you are protected as a director.

Don’t hesitate to get in touch with our team of licensed insolvency practitioners today for tailored, confidential advice.