UNFIT CONDUCT: Failing to meet the legal responsibilities of a company director means you can get banned.
Being banned as a director results from ‘unfit conduct’ which can include:
- Continuing to trade as a limited company even when it is unable to pay its debts.
- Failing to keep proper company accounting records or failing to send accounts and returns to Companies House.
- Failing to pay due taxation owed by the company.
- Using money or assets of a limited company for personal gain or benefit.
Note: Anyone can report a disqualified director or their unfit conduct. As a rule, a Debt Relief Order or bankruptcy restrictions mean you cannot be a company director.
Company Director Disqualification Process
There are several reasons why The Insolvency Service might investigate a company. They may also investigate the company director ‘personally’.
Either, or both, of these can happen if there is any involvement in insolvency proceedings. The same applies if someone made a complaint.
What happens if they believe a director failed to follow their legal responsibilities? In this case The Insolvency Service will inform them in writing:
- The action or inaction of the director that makes them unfit to operate.
- That they are starting the company director disqualification process and how to respond.
In response, the company director who is getting disqualified can then choose between:
- Wait for The Insolvency Service to take them to court for disqualification. The case can get defended in court if there is a disagreement with The Insolvency Service.
- Give a ‘disqualification undertaking‘ to The Insolvency Service. This process disqualifies the director ‘voluntarily’. Thus, it ends the court action taken against them.
Note: Getting a letter about director disqualification from The Insolvency Service is a serious matter. It is best to get legal advice if it happens.
Other entities can also apply to have a company director disqualified. Under certain circumstances the other bodies include:
- Companies House.
- The courts.
- The Competition and Markets Authority (CMA).
- A company insolvency practitioner.
If a Company Director gets Disqualified
The worst cases of director disqualifications can be up to 15 years long. Once banned, directors cannot:
- Become a director of any company registered in the United Kingdom. The same applies to any overseas company if it has connections with the United Kingdom.
- Have any involvement in the formation, marketing, or the running of a company.
Note: Breaking the terms of a director disqualification can result in a fine or a sentence in jail for up to 2 years.
Details of the disqualification will get published online via:
- The Companies House database of disqualified directors. The details get removed by automatic process from the database when the ban ends.
- The Insolvency Service register of directors. It records those who got disqualified in the last 3 months and details of why they got banned.
What if you want to become the director of a company while disqualified? In this case you must ask a court for permission to do so. You may also need the help of a legal adviser.
Restrictions of Disqualified Company Directors
There are several other disqualified directors restrictions that can apply after company director disqualification. As a rule, disqualified company directors cannot:
- Become a pension trustee.
- Become a registered social landlord.
- Occupy a seat on the board of a school, a charity, or a police authority.
- Take up a seat on a social care body or a health board.
- Become an accountant, a barrister, or a solicitor.
Note: Carrying out company business on the instructions of a person already disqualified is illegal. It can result in a prosecution and you can get held ‘personally‘ responsible for company debts.
New Laws for Tackling Improper Directors
The introduction of new legislation extends more power to the Insolvency Service (headquartered in London). As a result, they can investigate directors of dissolved companies (e.g. corporate insolvency).
It closes a legal loophole and should act as a strong deterrent for any company directors planning any misuse of the dissolution process in the United Kingdom.
Thus, using dissolution as a fraudulent method to avoid making repayments came above the radar. It particularly addresses improper directors from misappropriating loans given to businesses by the government (e.g. support during the Coronavirus pandemic).
Empowering extended investigations means the Insolvency Service can act on behalf of the Business Secretary and disqualify a company director for a period of fifteen (15) years.
The new measures can stop the director of a dissolved company from setting up an ‘identical’ business, following a dissolution. Often, doing so means customers and other creditors do not get paid (e.g. staff, taxpayers, and HM Revenue and Customs).
Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
Furthermore, the new Bill enables the Insolvency Service to challenge any directors who ‘inappropriately’ wind-up a limited company to benefit from Bounce Back Loans.