Director Disqualification - What Do I Need To Know?
Running a company can be a stressful time. If directors get too overwhelmed, they can start to slip and fall behind with their obligations to the company. There were 802 directors disqualified for misconduct in the year 2021-2022, according to The Insolvency Service Annual Report and Accounts; of these, 6% were disqualified for 10 years or more.
A director can be disqualified for several reasons, including, but not limited to, wrongful trading, fraudulent trading, and ‘unfit’ conduct.
If you fail to adhere to your duties as a director, you can be investigated and disqualified from the role.
Company insolvency
Once you’ve started the insolvency process, an administrator or liquidator will be appointed. After this has happened, there will be an investigation into why you had to close the company.
If the investigation finds that the company entered into insolvency because of director misconduct, they may issue a warrant for the director's disqualification.
Company insolvency doesn’t automatically mean you will be disqualified as a director; if no wrongful trading is found, you can start another company.
Director misconduct
Director misconduct can arise due to accusations of breaches of statutory duties as outlined in the Companies Act.
There does not have to be a deliberate intention to breach these duties; it can arise from something as simple as not paying attention to detail.
Whether the misconduct is deliberate or through carelessness, disqualification can be sought to prevent damage to the public.
What restrictions are placed on disqualified directors?
If you are disqualified, you cannot act as a director or manager during the disqualification period.
If you do either of these, it is a criminal offence.
If you are convicted, you can face up to 2 years imprisonment, a fine, or both. Plus, you will be personally responsible for all the company's debts.
An additional point of interest is that a manager, or director, acting on behalf of a disqualified director will also be held personally liable for company debts.
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