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How Can Director Disqualification Affect You?

If a director is found to be failing to meet their requirements, they can be disqualified from acting as a director in any company in the UK (including those that only operate in the UK but are based overseas).

There are a few reasons this can happen, whether that's by trading fraudulently or failing to submit documents such as a confirmation statement.

Being disqualified can have serious, long-term repercussions that can damage not just your career, but also your reputation. This means it can be worth understanding exactly what director disqualification is and how it may affect you.

What is director disqualification?

Director disqualification means that you cannot be the director of or manage a company, for the duration of the disqualification period. This can also mean you are unable to act as a director, even if you aren't named as a director on paper.

Anyone can report a company director as being 'unfit' through the gov.uk website.

What can be classed as unfit?

There are several ways in which a director can be found to be unfit, these include:

  • Failing to file a confirmation statement or annual accounts
  • Not keeping proper accounting records, or filing inaccurate accounts to Companies House
  • Failing to pay tax owed by the company
  • Personally gaining from the company's assets
  • Keeping trading when the company is insolvent

As well as the financial and professional costs of disqualification, there is also the cost to the person's reputation that can come with it. All disqualified directors are listed on the Companies House directory for the length of the disqualification, and are listed on the Insolvency Service's Register for three months.

Consequences of disqualification

You can be disqualified from acting as a director for a maximum of 15 years. You will be required to step down from the management of your current company and barred from holding the directorship of any company.

You will also be banned from forming, running or marketing a new company, even if you have someone acting on your behalf in the management of it.

Other restrictions can include:

  • You can be prevented from taking up other positions of trust including:
    • sitting on the board of a school, charity or police authority, or
    • acting as a pension trustee.
  • You cannot:
    • be registered as a social landlord
    • sit on a health or social care board
  • You may not be able to practice as a solicitor, barrister or accountant.

Breaching any of these restrictions can run the risk of a heavy fine or being sentenced to 2 years in prison.

What's a disqualification undertaking?

Following notification from the Insolvency Service that they are applying to the Court, you will be given the opportunity to enter into a Disqualification Undertaking.

A Disqualification Undertaking means you are voluntarily disqualifying yourself and therefore able to avoid going to Court.

The benefit of a disqualification undertaking is that it can lead to more lenient disqualification periods, lower fines and lower compensation requests. Whichever route you go down, you must seek legal advice.

How long does disqualification last?

The length of the disqualification depends on the gravity of the offence and the facts of your case. Generally, there are three bands that you can fall into.

Lower category offences - a disqualification will normally last between 2 and 5 years. This typically applies to negligent or reckless conduct, usually with a failure of judgment rather than an act carried out with malicious intent.

Mid-tier offences - a disqualification will normally last between 6 and 10 years. Offences in this category are usually more serious and possibly pose a risk to public interest.

Serious offences - a disqualification of up to 15 years. These are usually cases that involve fraud, embezzlement or serious criminal behaviour carried out for personal gain.

Will it affect your credit rating?

If you have not carried out your legal duties in accordance with the Companies Act 2006 and the Insolvency Act 1986, you can be held personally responsible for paying off the company's debts.

If this happens, you effectively take on the debt, which can affect your credit rating, since it then becomes personal debt.

This post is to be used for information only and does not act as legal or professional advice. You should seek your own professional legal advice.

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