Disqualification of Directors

Directors and other officers can, by reason of their conduct, be prevented from holding office by the provisions of the Company Directors Disqualification Act ( the “CDDA”).

When a liquidator investigates the affairs of an insolvent company it may reveal that the conduct of the officers of the company is questionable. In these instances, the liquidator has a duty to submit a report to the Secretary of State for DBERR. Cases of wrongful and or fraudulent trading will be reported amongst other instances of questionable conduct.

The Secretary of State will make an application to the court for a disqualification order to be made against the director or other officer of a company on the grounds his/her conduct makes them unfit to be concerned in the management of a company. The court will take into account the director’s conduct in respect of the insolvent company alone or as a director of any other company.

The minimum period of disqualification is two years and the maximum is 15 years, however, a disqualified person may apply to the court for leave to act as a director or manager of a company. If no leave is obtained and a disqualified person contiues to act then they could be held personally liable for the debts of the company he or she is managing.

What should happen next?

If you are facing a possible disqualification you need to take legal advice as the Secretary of State may accept a voluntary disqualification undertaking and the director subject of the proposed disqualification can avoid paying the court costs.

Business Law Briefing No: 3