With over 1,200 directors disqualified by the Insolvency Service in 2017/2018 for an average period of 5.7 years, directors are increasingly faced with the threat of disqualification which can have a wide-ranging impact on the individual director’s ability to manage a limited company/LLP.
So what should you do if you are faced with proposed disqualification proceedings?
- Take advice early.
This goes without saying. Often, directors will wish to be helpful and cooperative but this may result in matters being taken into account which are ultimately detrimental to your case. Using an expert solicitor with experience in defending these types of proceedings will mean that matters are dealt with quickly. You will also receive the right guidance by someone who understands the procedure and mechanism employed by the Insolvency Service. This will always result in a lower disqualification period or the matter being withdrawn in its entirety.
- Be engaged with the process.
Whether you seek advice from a solicitor or not, hoping that the matter will simply “go away” by not engaging in the process could result in an increased period of disqualification, as well as a bill for the legal costs of the Insolvency Service pursuing the matter through the court. Director disqualification is a serious matter and the Insolvency Service will only pursue those they deem to be “in the public interest”. As such, they are under an obligation to proceed to disqualification whether you respond or not. If you seek early assistance from a solicitor this will ensure the lines of communication remain open. It is equally important for you to communicate with your solicitor promptly to ensure deadlines are adhered to.
- Retrieve company documentation.
Often any proposed proceedings rely upon historical company documentation, some of which you may not have seen for a number of years (if at all). It is important for you to consider all documentation and draft evidence available. If in any doubt, you should seek confirmation from the Insolvency Service that you be permitted to review the company books and records. Should you be in possession of any company documentation, it is important that this be delivered up to the Insolvency Practitioner without delay.
- Consider reputational impact.
The Insolvency Service is increasingly utilising social media (Twitter and LinkedIn in particular) in order to publicise individual press releases once a disqualification order or undertaking is made. Historically a press release was issued to a local or national newspaper but other than the most high-profile cases they rarely hit the headlines. The advent of social media has provided the Insolvency Service with an immediate platform to highlight misconduct and you should be aware of the impact this may have on you, your business interests and your family.
- Breaching a disqualification order/undertaking.
If ultimately you are disqualified (whether this be by the court or as a result of a disqualification undertaking) you should be aware that any breach during the period of disqualification is a criminal offence which can result in an extended ban, being personally responsible for the debts of the new company, imprisonment for up to 2 years, confiscation of assets and/or costs orders. A breach includes remaining as a formal director or acting in the promotion, formation or management of a limited company/LLP. Taking appropriate legal advice can ensure you are carefully advised as to what represents a breach and whether permission can be sought from the court to allow you retain certain duties within a limited company/LLP.
About the Author:
Aman Sehgal, Consultant Solicitor, Keystone Law & Company Secretary of Malhotra Group
Aman has over 10 years’ experience as a panel solicitor acting on behalf of the Insolvency Service in director’s disqualification and public interest winding up matters. Having acted for the Insolvency Service, Aman is acutely aware of the process, procedure and strategy it adopts and is now well placed to advise directors defending such proceedings, in order to minimise their potential liability.