The Facts Regarding Director Disqualification

When it is triggered,the process of director disqualification is carried out by the Insolvency Service. Sometimes this occurs when an employee feels one of the directors of their company is unfit. The reasons behind can be many,but any director needs to understand what director disqualification is and how it works.

What Exactly Is Director Disqualification?

The director disqualification process is started when the director of a company is thought to be possibly unfit for his post. It must be remembered that anyone can report a company’s director’s conduct as being unfit,and it is at this time that the Insolvency Service will start the investigation.

What Conduct is Considered as Being Unfit

Unfit conduct covers a number of different behaviours that you need to understand.

These behaviours include letting the company to continue trading when it cannot pay its debts,although it is important to understand that ‘Insolvent trading’ may not be a reason to consider that a director is at fault. However,’Wrongful trading’ is a major offence and if a director is accused of this they would be wise to seek legal advice. Other reasons are,not keeping proper accounting records,not sending the books,not paying the taxes that the company owes and not providing returns to Companies House. Using company assets or money for personal benefit is another reason that can be construed as unfit conduct.

The Penalties

If the Insolvency Service’s investigation finds that the director is unfit,they could be disqualified for 15 years. In this time period,they will not be able act as a director of a company in the UK or for any a company that has a UK connection. They cannot get around this by working in the background either,as forming or marketing a company during this time is also not allowed. If they break these rules,the offence committed means that they could face a fine and a prison sentence of up to 2 years.

Just How Does Disqualification Work

When there is a complaint against a director or the company is involved in any insolvency actions,an investigation will be started by the Insolvency Service. At this stage,if the Insolvency Service considers that the director failed to meet the legal responsibilities of the role of director,the director will be told about this by letter. This communication will include the areas where they feel the director has not met the required standards. It will also include information as to whenthey are going to start the disqualification process and how you can respond.

When a director receives this communication,they have 2 ways forward. One of these is to wait for the Insolvency Service to start court action. Here you will be able to disagree in court saying why you think the Insolvency Service is incorrect in their assessment.

The second option is to provide the Insolvency Service with a disqualification undertaking. Here you agree to voluntary disqualification and you will not have to go to court. It is however recommended that you get legal advice before you take this course.

Disqualification Can Be Triggered In Other Ways

There are other groups that can apply for a director to be disqualified. However this is only allowed under certain circumstances. Such entities include Companies House,the courts,a company insolvency practitioner and the Competition and Markets Authority. All of these groups follow a process like the Insolvency Service.

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