13/06/12

Liquidation? Know your way around directors’ disqualifications rules

Richard Ludlow, head of the insolvency and debt recovery team at Furley Page

If you are a director of a company that goes into liquidation, you could be targeted by the Insolvency Service for disqualification proceedings, writes Richard Ludlow, head of insolvency and debt recovery at law firm Furley Page.

If you are disqualified by the courts, you are not allowed to be a director of a company or to act in the promotion, formation or management of a company.

The causes which could lead to you being subject to disqualification proceedings include:

*Allowing the company to trade while insolvent

*Failing to prepare and file accounts

*Not keeping proper accounting records

*Not sending returns to Companies House

*Failing to send tax returns and pay tax

Disqualification proceedings are issued in either the local County Court or in the High Court in London, depending on where the company was based.

When it goes into liquidation the director’s actions are considered by the liquidator, who has to compile a report which is sent to the Insolvency Service (an executive agency of the Department for Business, Innovation and Skills), where investigators consider the report and decide whether further investigation is appropriate with a view to potentially issuing proceedings.

If you are disqualified from acting as a director, it can have serious consequences for you. The purpose is to prevent any meaningful involvement in the running or decision-making process of a company. If you remain involved in the running of a company after disqualification, you could face imprisonment.

The key is to take early control when facing potential disqualification proceedings. If you do then it may be possible to avoid disqualification altogether. Even if you wait until after the proceedings have been issued, if you seek legal advice it may be possible to reduce the period of disqualification by offering mitigation or by agreeing to accept a disqualification undertaking.

A disqualification undertaking means you accept the allegations of misconduct and agree not to act as a director or be involved in the promotion, formation or management of a company for an agreed number of years. The period is usually, but not always, lower than the period asked for if proceedings are issued.

We can also provide advice that can assist if you have already been disqualified from acting as director. It is , if you act quickly, possible for an application to be made to the court for permission for you to act as a director of a specific company. If successful, you can then continue to run that specific company even during the period of your disqualification,” adds Richard.

Disqualification orders or undertakings can be from two years up to 15 years.