Penalties

Disqualification of Directors – what are the penalties?

The main penalty of a Directors Disqualification Order is that the recipient is unable to practice as a company director for the length of time specified in the order. Depending on the nature and severity of the offence, this can be for a period between 2 and 15 years.

Different types of disqualifying behaviour resulting different maximum order lengths, as laid out by the Company Director Disqualification Act 1986. As long as the Court sticks by the limits set out in the Act, they can also exercise discretion over the length of disqualification for a banned director.

For instance, if a director enters into a disqualification undertaking voluntarily, they may be able to receive a reduced ban as compared to if they were given a Court order.

Disqualification of directors – how long is a usual period of disqualification?

Although the maximum period for a Disqualification Order under the Company Director Disqualification Act 1986, is fifteen years, and the average ban during 2010-2011 was 6.1 years, periods of disqualification do vary quite dramatically – which it is why it’s so important to consult specialist solicitors with regard to presenting mitigation on your behalf – even if you don’t have a defence to disqualification itself.

However, as the very roughest of guides, periods for disqualification of directors tend to fall into three broad categories:

• If your offence is considered not as serious as others, you could receive a directors ban of 3-5 years

• More serious cases result in a Disqualification Order for 6-10 years

• The most serious cases of all typically receive a ban between 10 and 15 years – this can happen if you are being

Examples of disqualification penalties include:

• Persistent breach of Company Law (such as failing to keep proper accounts or file returns with Companies House) can lead to a disqualification of up to 5 years.

• Fraudulent or wrongful activity relating to the winding up of a company (such as defrauding creditors) can lead to a disqualification of up to 15 years.

• Unfit directors of insolvent companies have to be disqualified for a minimum of 2 years and a maximum of 15.

Disqualification of Directors – other penalties

As well as a Disqualification Order lasting for a set period of time, another penalty is that the person in question’s name must be entered onto the Disqualified Directors Register for the length of their disqualification.

In certain cases, the 1986 Act also permits criminal proceedings to be undertaken and so if criminal laws have been broken by a director, they could also end up facing a criminal case as well as a civil Disqualification Order.

Also, just as disqualified directors are unable to serve as company directors, they are also unable to serve as directors of:

• Building societies

• Foreign companies with UK registration

• NHS trusts

• Incorporated friendly societies

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