Restrictions on Disqualified Directors in the UK

A director of a company can be disqualified for not keeping to the duties of a director as set out by the CDDA (Company Directors Disqualification Act of 1986). Some of the main reasons include wrongful or fraudulent trading or unfit conduct which may result in an investigation and disqualification. The CDDA contains powerful significant powers to ban directors who have been found to be ‘unfit’ from becoming directors in any limited liability company for a set amount of time,usually 15 years. However,before any action is taken the government agency has to prove unfit actions or wrongful doing has taken place. Disqualification only happens when a director has been found guilty of acting fraudulently,wrongfully,or in some other way,very badly.

As well as this,the Small Business,Enterprise & Employment Act has introduced more measures since October 2015 to disqualify directors who have run an insolvent business in the past or who have had an influence on other directors who operated insolvent businesses.

Directors involved in offences abroad can now also be disqualified if a court so finds.

Director disqualification is a very serious matter which will be registered at the Companies House,where all new directorships are monitored. Details of disqualified directors are provided to any relevant party upon application. If a court has made a disqualification order against a director or the Department has accepted a disqualification undertaking,a director can be sent to goal if the order or undertaking is broken.

What are the Restrictions on Disqualified Directors?

It is recommended that disqualified directors consult a solicitor or insolvency practitioner to fully understand the details of the specific order or undertaking that may be applied,and the effect they will have. It does not stop a disqualified director from employment,but,unless court permission has been granted it does not allow:

  • Being a director of a company
  • Acting in the capacity of a receiver of company property
  • Taking part in or being concerned with the formation,management or promotion of a company
  • Acting as an insolvency practitioner
  • Holding various offices such as the trustee of a charity

Plus,while a director disqualification order or undertaking is in place a disqualified director is not allowed to:

– act in the capacity of a director and the order or undertaking cannot be avoided by simply changing a job description

– allow other individuals to manage a company under their direction

The order or undertaking allows a disqualified director to carry on business in partnership with others or as a sole trader but cannot be a member,take part in or be concerned with the setting up,management or promotion of any limited liability company.

The abovementioned prohibited acts and restrictions apply to all companies formed in England,Northern Ireland,Wales,and Scotland as well as foreign companies if:

– the company is registered in the United Kingdom

– the company has sufficient connection even if it is not registered in the UK,for example,it has assets or carries on business in the UK.

These prohibited acts and restrictions also apply to building societies or incorporated friendly societies.

Permission to Act in a way Otherwise Prohibited by a Director Disqualification Order or Undertaking

A formal application has to be made under Article 21 to the High Court for permission to act as a director of a company or to do anything else prohibited by the order or undertaking. The court will need to be satisfied that a reasonable need is present before granting permission. However,a court can never grant a disqualified director permission to act as an insolvency practitioner. The court will also have to be satisfied that if permission is allowed the public will be totally protected and may impose conditions and require certain safeguards.

If the order or undertaking is contravened it becomes a criminal offence resulting in a fine or a prison sentence of up to 2 years. A disqualified director may also be personally liable for any debts incurred by the company while the order or undertaking was being contravened. Any person acting on the instructions of a disqualified director may also be held personally liable for such debts.

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