What are the reasons for disqualification?
Under the Company Directors Disqualification Act 1986, company directors can be disqualified from acting as a director if they are found guilty of 'unfit conduct', for example, if they:
continued to trade when the company was insolvent - or they failed to assist the appointed Insolvency Practitioner
allowed a company to continue trading which cannot pay its debts
failed to maintain proper company accounting records
failed to submit company accounts and returns to Companies House
did not pay any tax owed by the company
used company money or assets for personal benefit
Under UK law you cannot be a company director while your bankruptcy remains undischarged in the UK. You are legally prohibited from managing, forming or promoting a limited company unless you have explicit permission from the court.
It is important that you understand and abide by these limitations. If you attempt to become a company director while your bankruptcy is undischarged, you will be breaking the law. Once your bankruptcy has been discharged, you can become a director again.
What is the procedure for disqualification?
Anyone can report a company director for alleged unfit conduct. Other than making complaints about filing of accounts that are made to Companies House, most complaints are made to the Insolvency Service (apart from serious and complex fraud which should be reported to the Serious Fraud Office).
Upon receiving a complaint, the Insolvency Service may decide to carry out a confidential investigation of the company and its directors - or pass on the complaint to another public body.
After an investigation is conducted, the relevant body may decide to close a company and/or disqualify directors, in addition to potentially carrying out a criminal investigation.
If the Insolvency Service believes that a director has not followed their legal responsibilities, they will inform the director of the details of the allegation and notify them of the disqualification process, as well as inviting them to respond. The director can either:
wait for court proceedings to be brought and defend the claim in court (if they believe the allegation to be false)
provide the Insolvency Service with a 'disqualification undertaking' if they accept the allegations - this is a voluntary disqualification that avoids court
What are the consequences of disqualification?
Disqualified directors are barred from:
being a director of any company registered in the UK, or of an overseas company with connections to the UK
being involved in the formation, marketing or running of any company
sitting on the boards of charities, schools, police authorities, health boards and social care bodies - or acting as a registered social landlord
acting as pension trustees
acting as solicitors, barristers or accountants
Breaching the terms of disqualification can result in a fine or, in the most serious cases, imprisonment for up to 2 years.
If you carry out company business based on the instructions of a disqualified director, you can be prosecuted and become personally liable for the company’s debts.
How long can a director be disqualified for?
Company directors are disqualified for between 2 - 15 years. During this time, their details are kept on the Companies House database (and automatically removed once disqualification comes to an end).
Can a disqualified director act as a director?
If a disqualified director has a 'reasonable need' to act as a company director during the period of their disqualification, they can apply to the court. If they are granted an exception, this may come with various restrictions.
By virtue of the court, a ‘Permission to Act’ application may be submitted by stating the requirement for a company director to act in the capacity of a director following disqualification. The details of the application should contain details of the disqualified directors current circumstances and the necessity for becoming a director.
Searching for disqualified directors
If a director is based in England, Wales or Scotland and was disqualified in the past 3 months, you can find full details of this by using the Insolvency Service online service.
The Companies House Register provides further details of all disqualified directors within the UK.