Dealing with potential disqualification as a director

You can be disqualified as a director if you do not meet your legal responsibilities as a director of a limited company. This includes your conduct during the 3 year period prior to the insolvency of your company.

Most common areas for disqualification are;

1- Not ensuring that your company pays corporation tax, PAYE and VAT as and when it falls due.

2- Using company monies for personal benefit (known as misfeasance), including payment of director’s remuneration when large creditors remain unpaid.

3- Disposing of the company’s assets at an undervalue.

4- Excessive remuneration/overdrawn director’s loan account.

Following an Insolvency, any affected party or the relevant Insolvency Practitioner can report a director if there is some evidence of deficient performance by making a report to the Insolvency Service. The Insolvency Service may then investigate you or/and your company to decide whether you are fit for the role as director.

If the Insolvency Service concludes that you have failed to act correctly, it will contact you formally in writing to state:

Why they think you are an unsuitable director
How the process of disqualification will start
The appropriate way to respond

At this point you have two options:

Wait until the Insolvency Service takes you to court to disqualify you as director – you can contact a solicitor during this time to help defend your case. If you fail to seek appropriate advice and become disqualified, you will be responsible for meeting the legal costs of the Insolvency service as well as court related costs.
Give a ‘disqualification undertaking’ which involves volunteering yourself for disqualification as a director for an agreed period in order for all court action (whether proposed or afoot) against you to end. Often, this can result in the Insolvency Service not seeking costs from you and the matter can be dealt with quickly.

If you do become disqualified, this can be for up to 15 years.

If you do have doubts as to whether you may be reported and become subject to disqualification, Chamberlain & Co can give advice and refer you to a specialist solicitor to help steer you in the appropriate direction.

We are available to call on 0113-2420808 or email advice@chamberlain-co.co.uk